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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

2 February 2017

Commission File Number 1-10691

DIAGEO plc

(Translation of registrant’s name into English)

Lakeside Drive, Park Royal, London NW10 7HQ, England

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ☒                    Form 40-F  ☐

Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

This report on Form 6-K shall be deemed to be filed and incorporated by reference in the registration statements on Form F-3 (File No. 333-202774, 333-110804, 333-132732, 333-153488 and 333-179426) and registration statements on Form S-8 (File Nos. 333-206290, 333-169934, 333-162490, 333-153481, 333-154338 and 333-182315) and to be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.

 

 

 


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INDEX TO FORM 6-K

 

     Page  

Introduction

     3   

Presentation of financial information

     3   

Trademarks, trade names and market data

     3   

Cautionary statement concerning forward-looking statements

     4   

Selected consolidated financial data

     6   

Capitalisation and indebtedness

     9   

Business review

     10   

Information presented

     10   

Recent trends

     10   

Operating results for the six months ended 31  December 2016 compared with the six months ended 31 December 2015

     11   

Liquidity and capital resources

     41   

Off-balance sheet arrangements

     43   

Definitions and reconciliation of non-GAAP measures to GAAP measures

     43   

New International Financial Reporting Standards

     52   
Index to the unaudited condensed financial information for the six months ended 31 December 2016 and 31 December 2015      F-1   

Unaudited condensed consolidated income statement

     F-2   

Unaudited condensed consolidated statement of comprehensive income

     F-3   

Unaudited condensed consolidated balance sheet

     F-4   

Unaudited condensed consolidated statement of changes in equity

     F-5   

Unaudited condensed consolidated statement of cash flows

     F-6   

Notes to the unaudited condensed consolidated financial information

     F-7   

Unaudited computation of ratio of earnings to fixed charges

     A-1   

Signature

  

 

    

    

    

    

    

    

 

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INTRODUCTION

Diageo plc is a public limited company incorporated under the laws of England and Wales. As used herein, except as the context otherwise requires, the term ‘company’ refers to Diageo plc and the terms ‘group’ and ‘Diageo’ refer to the company and its consolidated subsidiaries. References used herein to ‘shares’ and ‘ordinary shares’ are, except where otherwise specified, to Diageo plc’s ordinary shares.

PRESENTATION OF FINANCIAL INFORMATION

Diageo plc’s fiscal year ends on 30 June. The company publishes its consolidated financial statements in pounds sterling. In this document, references to ‘pounds sterling’, ‘sterling’, ‘£’, ‘pence’ or ‘p’ are to UK currency, references to ‘US dollars’, ‘US$’, ‘$’ or ‘¢’ are to US currency and references to the ‘euro’ or ‘€’ are to the euro currency. For the convenience of the reader, this document contains translations of certain pounds sterling amounts into US dollars at specified rates, or, if not so specified, the noon buying rate in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York (the ‘noon buying rate’) on 31 December 2016 of £1 = $1.23. No representation is made that the pounds sterling amounts have been, could have been or could be converted into US dollars at the rates indicated or at any other rates.

Diageo’s condensed consolidated financial information has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted for use in the European Union (EU) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). References to IFRS hereafter should be construed as references to both IFRS as adopted by the EU and IFRS as issued by the IASB. Unless otherwise indicated, all financial information contained in this document has been prepared in accordance with IFRS. This interim condensed 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 2016.

The business review, selected consolidated financial data and financial information included in this document for the six months ended 31 December 2016 and 31 December 2015 have been derived from the published Diageo interim condensed consolidated financial information.

The principal executive office of the company is located at Lakeside Drive, Park Royal, London NW10 7HQ, England and its telephone number is +44 (0)20 8978 6000.

TRADEMARKS, TRADE NAMES AND MARKET DATA

This report on Form 6-K includes names of Diageo’s products which constitute trademarks or trade names which Diageo owns or which others own and license to Diageo for use. All rights reserved. © Diageo plc 2017.

The market data and competitive set classifications are taken from independent industry sources in the markets in which Diageo operates.

 

    

    

    

    

    

    

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This document contains ‘forward-looking’ statements. These statements can be identified by the fact that they do not relate only to historical or current facts. In particular, forward-looking statements include all statements that express forecasts, expectations, plans, outlook, objectives and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of changes in interest or exchange rates, the availability or cost of financing to Diageo, anticipated cost savings or synergies, expected investments, the completion of Diageo’s strategic transactions and restructuring programmes, anticipated tax rates, changes in the international tax environment, expected cash payments, outcomes of litigation, anticipated deficit reductions in relation to pension schemes and general economic conditions. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including factors that are outside Diageo’s control.

These factors include, but are not limited to:

 

    economic, political, social or other developments in countries and markets in which Diageo operates, which may contribute to reduced demand for Diageo’s products, reduced consumer spending, negative impacts on Diageo’s customer, supplier and financial counterparties or the imposition of import, investment or currency restrictions;
    the results of the decision in the United Kingdom’s referendum on 23 June 2016 to leave the European Union and its stated intention to exit the single market, which may lead to a sustained period of economic and political uncertainty and complexity until the detailed terms of the United Kingdom’s exit from the European Union and any successor trading arrangements with other countries are finalised, which may negatively impact economic conditions in Europe more generally and could have an adverse impact on Diageo’s business operations and financial performance;
    changes in consumer preferences and tastes, including as a result of changes in demographic and social trends, public health regulations and travel, vacation or leisure activity patterns, or as a result of contamination, counterfeiting or other circumstances which could harm the integrity or sales of Diageo’s brands;
    any litigation or other similar proceedings (including with tax, customs and other regulatory authorities), including that directed at the drinks and spirits industry generally or at Diageo in particular, or the impact of a product recall or product liability claim on Diageo’s profitability or reputation;
    the effects of climate change and related regulations and other measures to address climate change, including any resulting impact on the cost and supply of water;
    changes in the cost of production, including as a result of increases in the cost of commodities, labour and/or energy or as a result of inflation;
    legal and regulatory developments, including changes in regulations regarding production, product liability, distribution, importation, labelling, packaging, consumption, advertising and data privacy; changes in tax law (including tax treaties), rates or requirements (including with respect to the impact of excise tax increases) or accounting standards; and changes in environmental laws, health regulations and the laws governing labour and pensions;
    changes to the international tax environment such as the OECD Base Erosion and Profit Shifting Initiative and EU anti-tax abuse measures resulting in uncertainty around the application of existing and new tax laws, leading to unexpected tax exposures;
    the consequences of any failure by Diageo to comply with anti-corruption and other laws and regulations or any failure of Diageo’s related internal policies and procedures to comply with applicable law;
    ability to maintain Diageo’s brand image and corporate reputation or to adapt to a changing media environment, and exposure to adverse publicity, whether or not justified, and any resulting impacts on Diageo’s reputation and the likelihood that consumers choose products offered by Diageo’s competitors;
    increased competitive product and pricing pressures, including as a result of actions by increasingly consolidated competitors, that could negatively impact Diageo’s market share, distribution network, costs or pricing;
    the effects of Diageo’s business strategies, including in relation to expansion in emerging markets and growth of participation in international premium spirits markets, the effects of business combinations, partnerships, acquisitions or disposals, existing or future, and the ability to realise expected synergies and/or costs savings;
    Diageo’s ability to benefit from its strategy, including its ability to expand into new markets, to complete and benefit from existing or future business combinations or other transactions, to implement cost saving and productivity initiatives or to forecast inventory levels successfully;

 

    

    

    

    

    

    

 

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    contamination, counterfeiting or other events that could adversely affect the perception of Diageo’s brands;
    increased costs or shortages of talent;
    disruption to production facilities or business service centres or information systems (including cyber-attack), existing or future;
    fluctuations in exchange rates and interest rates, which may impact the value of transactions and assets denominated in other currencies, increase the cost of financing or otherwise affect Diageo’s financial results;
    movements in the value of the assets and liabilities related to Diageo’s pension funds;
    renewal of supply, distribution, manufacturing or licence agreements (or related rights) and licences on favourable terms or at all when they expire; and
    failure of Diageo to protect its intellectual property rights.

All oral and written forward-looking statements made on or after the date of this document and attributable to Diageo are expressly qualified in their entirety by the above factors and by the ‘Risk factors’ section contained in the annual report on Form 20-F for the year ended 30 June 2016 filed with the U.S. Securities and Exchange Commission (SEC). 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 any documents which it publishes and/or files with the US Securities and Exchange Commission (SEC). All readers, wherever located, should take note of these disclosures.

This document includes names of Diageo’s products, which constitute trademarks or trade names which Diageo owns, or which others own and license to Diageo for use. All rights reserved. © Diageo plc 2017.

The information in this document does not constitute an offer to sell or an invitation to buy shares in Diageo plc or an invitation or inducement to engage in any other investment activities.

This document may include information about Diageo’s target 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.

 

    

    

    

    

    

    

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set out below has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union (EU) and IFRS as issued by the International Accounting Standards Board (IASB) and should be read in conjunction with, and are qualified in their entirety by reference to, the unaudited financial information and notes presented elsewhere in this document and to Diageo’s annual report on Form 20-F for the year ended 30 June 2016.

The following table presents selected consolidated financial data for Diageo: for the six months ended 31 December 2016 and 31 December 2015 and as at the respective period ends, derived from the unaudited interim condensed consolidated financial information presented elsewhere in this document; and for the five years ended 30 June 2016 and as at the respective year ends, derived from Diageo’s consolidated financial statements audited by Diageo’s independent auditor. The group’s former auditors, KPMG LLP and its affiliates (KPMG) reported on the financial statements for the four years ended 30 June 2015. The unaudited interim condensed consolidated financial information, in the opinion of Diageo management, includes all adjustments, consisting solely of normal, recurring adjustments, necessary to present fairly the information contained therein. The results of operations for the six months ended 31 December 2016 are not necessarily indicative of the results for the year ending 30 June 2017.

 

    Six months ended 31 December     Year ended 30 June  
    2016     2016     2015     2016     2015     2014     2013     2012  

Income statement data(1)

      $ million(6)         £ million         £ million         £ million         £ million         £ million         £ million         £ million  

Sales

    11,826        9,615        8,267        15,641        15,966        13,980        15,276        14,392   

Operating profit

    2,540        2,065        1,613        2,841        2,797        2,707        3,380        3,108   

Profit for the period

               

Continuing operations(2)

    2,015        1,638        1,488        2,362        2,467        2,264        2,550        2,032   

Discontinued operations(3)

    (68     (55                          (83            (11
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total profit for the period(2)

    1,947        1,583        1,488        2,362        2,467        2,181        2,550        2,021   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per share data

  $     pence     pence     pence     pence     pence     pence     pence  

Dividend per share(4)

    0.29        23.7        22.6        59.2        56.4        51.7        47.4        43.5   

Earnings per share

               

Basic

               

Continuing operations(2)

    0.77        62.5        56.1        89.5        95.0        93.0        98.0        76.6   

Discontinued operations(3)

    (0.03     (2.2                          (3.3            (0.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

    0.74        60.3        56.1        89.5        95.0        89.7        98.0        76.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

               

Continuing operations(2)

    0.77        62.2        55.8        89.1        94.6        92.6        97.4        76.2   

Discontinued operations(3)

    (0.03     (2.2                          (3.3            (0.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

    0.74        60.0        55.8        89.1        94.6        89.3        97.4        75.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    million     million     million     million     million     million     million     million  

Average shares

    2,511        2,511        2,507        2,508        2,505        2,506        2,502        2,495   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    As at 31 December     As at 30 June  
    2016     2016     2015     2016     2015     2014     2013     2012  

Balance sheet data(1)

  $ million(6)     £ million     £ million     £ million     £ million     £ million     £ million     £ million  

Total assets

    37,183        30,230        26,797        28,491        25,804        22,964        24,991        22,269   

Net assets

    13,841        11,253        9,677        10,180        9,256        7,590        8,088        6,792   

Net borrowings(5)

    10,991        8,936        9,228        8,635        9,527        8,850        8,403        7,573   

Equity attributable to the parent company’s equity shareholders

    11,653        9,474        8,139        8,530        7,771        6,823        7,036        5,588   

Share capital

    980        797        797        797        797        797        797        797   

This information should be read in conjunction with the notes on pages 7 to 8.

 

    

    

    

    

    

    

 

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Notes to the selected consolidated financial data

(1) IFRS accounting policies The unaudited condensed consolidated financial information for the six months ended 31 December 2016 has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as issued by the International Accounting Standards Board (IASB) and adopted for use in the European Union.

(2) Exceptional items Exceptional items are charges or credits which, in management’s judgement, need to be disclosed separately by virtue of their size or nature 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. An analysis of exceptional items is as follows (please see note 3 to the unaudited condensed consolidated financial information for further details):

 

     Six months ended
31 December
    Year ended 30 June  
     2016     2015     2016     2015     2014     2013     2012  
         £ million         £ million         £ million         £ million         £ million         £ million         £ million  

Items included in operating profit

              

Brand and goodwill impairment

            (104     (118            (264     (50     (59

Restructuring programmes

                          (82     (163     (69     (96

Duty settlements

                          (146                     

Associate impairment

                          (41                     

Pension changes — past service credits

                                        20        115   

Disengagement agreements relating to United Spirits Limited

                   (49                            
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
            (104     (167     (269     (427     (99     (40
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating items

              

Gains/(losses) on sale of businesses

     20        303        215        247        (2     (83     147   

Step up gains

                          156        140                 

Other non-operating items

            (92     (92     (30     2                 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     20        211        123        373        140        (83     147   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Items included in taxation

              

Tax credit on exceptional operating items

            10        7        51        99        27        19   

Tax on sale of businesses

     (7     12        49                      28          

Loss of future tax amortisation

                                               (524
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (7     22        56        51        99        55        (505
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Exceptional items included in continuing operations

     13        129        12        155        (188     (127     (398

Discontinued operations net of taxation(3)

     (55                          (83            (11
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Exceptional items

     (42     129        12        155        (271     (127     (409
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(3) Discontinued operations In the six months ended 31 December 2016 discontinued operations of £55 million, net of £9 million deferred tax (year ended 30 June 2016 — £nil; 2015 — £nil; 2014 — £83 million; 2013 — £nil; 2012 — £11 million) comprise additional amounts payable to the UK Thalidomide Trust following an agreement reached in December 2016, updates to the discount and inflation rates applied to the existing thalidomide provision and legal costs.

(4) Dividends The Board expects that Diageo will pay an interim dividend in April and a final dividend in October of each year. Approximately 40% of the total dividend in respect of any financial year is expected to be paid as an interim dividend and approximately 60% as a final dividend. The payment of any future dividends, subject to shareholder approval, will depend upon Diageo’s earnings, financial condition and such other factors as the Board deems relevant. Proposed dividends are not considered to be a liability until they are approved by the Board for the interim dividend and by the shareholders at the annual general meeting for the final dividend.

 

    

    

    

    

    

    

 

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The table below sets out the amounts of interim, final and total cash dividends paid by the company on each ordinary share. The dividends are translated into US dollars per ADS (each ADS representing four ordinary shares) at the actual rate on each of the respective dividend payment dates.

 

          Six months ended
31 December
     Year ended 30 June  
          2016      2015      2016      2015      2014      2013      2012  
                pence            pence            pence            pence            pence            pence            pence  

Per ordinary share

   Interim      23.7         22.6         22.6         21.5         19.7         18.1         16.6   
   Final                      36.6         34.9         32.0         29.3         26.9   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   Total      23.7         22.6         59.2         56.4         51.7         47.4         43.5   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
          $      $      $      $      $      $      $  

Per ADS

   Interim      1.19         1.27         1.27         1.28         1.31         1.10         1.05   
   Final                      1.85         2.14         2.06         1.89         1.72   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   Total      1.19         1.27         3.12         3.42         3.37         2.99         2.77   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Note: The interim dividend for the six months ended 31 December 2016 will be paid on 6 April 2017, and payment to US ADR holders will be made on 11 April 2017. In the table above, an exchange rate of £1 = $1.25 has been assumed for this dividend, but the exact amount of the payment to US ADR holders will be determined by the rate of exchange on 6 April 2017.

(5) Net borrowings definition Net borrowings are defined as gross borrowings (short term borrowings and long term borrowings plus finance lease obligations plus interest rate hedging instruments, cross currency interest rate swaps and funding foreign currency swaps and forwards used to manage borrowings) less cash and cash equivalents.

(6) Exchange rates A substantial portion of the group’s assets, liabilities, revenues and expenses is denominated in currencies other than pounds sterling. For the convenience of the reader, selected consolidated financial information for the six months ended 31 December 2016 has been translated into US dollars at the noon buying rate on 31 December 2016 of £1 = $1.23.

The following table shows, for the periods indicated, information regarding the US dollar/pound sterling exchange rate, based on the noon buying rate, expressed in US dollars per £1.

 

     Six months ended
31 December
     Year ended 30 June  
             2016              2015              2016              2015              2014              2013              2012  
     $      $      $      $      $      $      $  

Period end/year end

     1.23         1.47         1.32         1.57         1.71         1.52         1.57   

Average rate(i)

     1.27         1.52         1.47         1.57         1.64         1.57         1.59   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

(i) The average of the noon buying rates on the last business day of each month during the six months ended 31 December and during the years ended 30 June.

The average exchange rate for the period 1 January to 27 January 2017 was £1 = $1.23 and the noon buying rate on 27 January 2017 was £1 = $1.25.

These rates have been provided for information only. They are not necessarily the rates that have been used in this document for currency translations or in the preparation of the consolidated financial information. See note 2 to the unaudited condensed consolidated financial information for the actual rates used in the preparation of the consolidated financial information.

 

    

    

    

    

    

    

 

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CAPITALISATION AND INDEBTEDNESS

The following table sets out on an IFRS basis the unaudited capitalisation of Diageo as at 31 December 2016:

 

             31 December 2016  
     £ million  

Short term borrowings and bank overdrafts (including current portion of long term borrowings)

     2,743   
  

 

 

 

Long term borrowings

  

Due from one to five years

     2,567   

Due after five years

     4,935   
  

 

 

 
     7,502   

Finance lease obligations

     238   

Non-controlling interests

     1,779   
  

 

 

 

Equity attributable to the equity shareholders of the parent company

  

Share capital

     797   

Share premium

     1,348   

Capital redemption reserve

     3,146   

Fair value, hedging and exchange reserve

     (374

Own shares

     (2,211

Other retained earnings

     6,768   
  

 

 

 
     9,474   
  

 

 

 

Total capitalisation

     21,736   
  

 

 

 

 

Notes

 

(1) At 31 December 2016 the group had cash and cash equivalents of £1,254 million.

 

(2) At 31 December 2016, 2,754,440,635 ordinary shares of 28 101/108 pence each were issued, all of which were fully paid, including shares issued, shares issued and held in employee share trusts and those held as treasury shares.

 

(3) There have been no material changes to performance guarantees or indemnities in respect of liabilities of third parties from those reported in Diageo’s Annual Report on Form 20-F for the year ended 30 June 2016.

 

(4) At 31 December 2016, £159 million of the group’s net borrowings were secured on assets of the group.

 

(5) Since 31 December 2016 no shares have been acquired by Diageo as part of the share buyback programs or to be held as treasury shares for hedging share scheme grant provided to employees.

 

(6) Save as disclosed above there has been no material change since 31 December 2016 in the group’s net borrowings, performance guarantees, indemnities and capitalisation.

 

    

    

    

    

    

    

 

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BUSINESS REVIEW

INFORMATION PRESENTED

Diageo is the world’s leading premium drinks business and operates on an international scale selling all types of beverage alcohol. It is one of a small number of premium drinks companies that operate globally across spirits and beer.

The following discussion is based on Diageo’s results for the six months ended 31 December 2016 compared with the six months ended 31 December 2015.

Organic movements and organic operating margin presented in this section are before exceptional items. Share, unless otherwise stated, refers to value share. See ‘Definitions and reconciliations of non-GAAP measures to GAAP measures’ for an explanation of organic movements on page 43.

RECENT TRENDS

Ivan Menezes, Chief Executive of Diageo, commenting on the six months ended 31 December 2016 said:

“We have delivered a strong set of results with broad based improvement in both organic volume and top line growth and this positive momentum demonstrates continued effective execution of our strategy. Highlights this half include improved performance in our US Spirits business and across our scotch portfolio, driven by our focus on marketing with impact, innovating at scale, expanding our route to consumer, and winning in reserve. Progress on productivity supports growth, margin improvement and consistent strong cash flow generation as well as improving our agility.

Diageo is building a stronger, more consistent, better performing company. We are identifying consumer trends faster, expanding the reach of our products across markets and developing trade channels to capture these growth opportunities. Our productivity work is on track, driving efficiency and effectiveness across the business. Our work on trade and marketing spend gives us better data enabling smarter, quicker decisions that generate higher returns.

Our expectations of delivering stronger financial performance this year are unchanged. We are confident of achieving our medium term objective of consistent mid-single digit top line growth and 100bps of organic operating margin improvement(i) in the three years ending 30 June 2019.”

The above comments were made by Ivan Menezes, Chief Executive of Diageo, in connection with the release of the Interim Announcement published on 26 January 2017.

 

(i) For the explanation of reconciliation of non-GAAP measures to GAAP measures please see page 43.

 

    

    

    

    

    

    

 

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OPERATING RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016 COMPARED WITH THE SIX MONTHS ENDED 31 DECEMBER 2015

Key highlights

 

    Reported net sales (£6,421 million) and operating profit (£2,065 million) were up 14.5% and 28.0% respectively, reflecting accelerated organic growth and favourable exchange
    Organic growth, across all regions, with 1.8% volume growth and 4.4% net sales growth
    Organic operating profit grew 4.4%, in line with top line growth, driven by gross margin improvement, good progress on productivity offset by implementation costs and the profit on sale of the UB shares in the prior period
    Free cash flow continued to be strong at £1,084 million, increasing by £245 million compared to the prior period with net cash from operating activities up £230 million to £1,267 million
    Basic eps of 60.3 pence. Pre-exceptional eps was 62.0 pence, up 21%, as higher operating profit and associate income along with favourable exchange more than offset the impact of disposals and a higher tax rate
    Interim dividend up 5% at 23.7 pence per share

 

Summary financial information

              F17 H1           F16 H1           Organic
growth
%
        Reported
growth

%
 

Volume

   EUm      129.4        130.3        2        (1

Net sales

   £ million      6,421        5,606        4        15   

Marketing

   £ million      908        822        (2     10   

Operating profit before exceptional items

   £ million      2,065        1,717        4        20   

Exceptional operating items

   £ million             (104    

Operating profit

   £ million      2,065        1,613          28   

Share of associate and joint venture profit after tax

   £ million      171        136          26   

Exceptional non-operating items(i)

   £ million      20        211       

Net finance charges

   £ million      182        176       

Tax rate

   %      21.0        16.6          27   

Tax rate before exceptional items

   %      20.9        19.0          10   

Discontinued operations (after tax)(i)

   £ million      (55           

Profit attributable to parent company’s shareholders

   £ million      1,514        1,406          8   

Basic earnings per share

   pence      60.3        56.1          7   

Earnings per share before exceptional items

   pence      62.0        51.3          21   

Interim dividend

   pence      23.7        22.6          5   

 

 

(i) For further details of exceptional and discontinued operations items see page F-11.

Outlook for exchange

Using exchange rates £1 = $1.24; £1 = €1.16, the exchange rate movement for the year ending 30 June 2017 is estimated to favourably impact net sales by approximately £1.4 billion and operating profit by approximately £460 million and have an adverse impact of approximately £36 million on net interest. This is primarily driven by the strengthening of the US dollar and the euro.

Outlook for tax(i)

The tax rate before exceptional items for the six months ended 31 December 2016 was 20.9% compared with 19.0% in the prior period. It is expected that the tax rate before exceptional items for the year ending 30 June 2017 will be approximately 21%.

 

(i) For the explanation of reconciliation of non-GAAP measures to GAAP measures please see page 43.

 

    

    

    

    

    

    

 

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Dividend

Interim dividend at 23.7 pence per share is up 5%.

Diageo has agreed with its ADR depositary bank that from the beginning of fiscal 2017, a dividend fee will be charged at the rate of 1 cent per ADR per dividend payment.

Acquisitions and disposals

The impact of acquisitions and disposals on the reported figures was primarily attributable to the prior period disposals of non-core assets, including the Desnoes & Geddes Limited beer business based in Jamaica and the group’s wine businesses in the United States and United Kingdom. The year on year net impact from acquisitions and disposals on net sales was £(236) million and on operating profit was £(42) million.

For further details on the impact of acquisitions and disposals see page 47.

 

    

    

    

    

    

    

 

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Key performance indicators

Net sales (£ million)

14.5% increase in reported net sales with favourable exchange

Organic net sales growth of 4.4% with 1.8% volume growth and positive mix

 

LOGO 853 107 163 6 421 24 5 606 (260) (72) Organic movement F16 H1 Asia Pacific net Exchange(ii) Disposals Acquisitions Volume Price/mix F17 H1 sales adjustment(i)

 

 

(i) Adjustment for the impact of an accounting change made by USL to account for sales by third party manufacturers to a net sales basis in the prior period. See page 18 for more details.
(ii) Exchange rate movements reflect the translation of prior period reported results at current exchange rates.

Net sales grew 14.5%, driven by favourable exchange and organic net sales growth offset by the disposal of non-core assets and the accounting change in India.

Organic volume growth of 1.8% and positive mix drove 4.4% net sales growth, with organic net sales growth across all regions.

Operating profit (£ million)

Reported operating profit growth of 28%

Organic operating profit growth of 4.4%

 

LOGO 303 87 2 065 (33) (9) 1041 613 F16 H1 Exceptional Exchange Disposals Acquisitions Organic movement F17 H1 operating items

Reported operating profit was up 28% as a result of favourable exchange, organic growth and comparison against an exceptional charge in the prior period. Organic operating profit was was up 4.4%, in line with organic net sales growth.

 

    

    

    

    

    

    

 

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Operating margin (%)

Reported operating margin growth of 339bps

Organic margin declined (1) bps

 

LOGO Organic movement 90bps 39bps 53bps 32.16% 37bps 64bps 130bps 185bps 28.78% F16 H1 Exceptional Exchange Asia Pacific net Acquisitions Gross margin Marketing Other operating F17 H1 operating items sales and disposals expenses adjustment(i)

 

 

(i) Adjustment for the impact of an accounting change made by USL to account for sales by third party manufacturers to a net sales basis in the prior period. See page 18 for more details.

Operating margin improved by 339bps mainly driven by the comparison against the prior period exceptional charge, favourable exchange, the disposal of lower margin non-core assets and the net sales adjustment in Asia Pacific. Organic operating margin was broadly flat. Improvement in gross margin was driven primarily by positive mix. Procurement savings and cost efficiencies drove 90bps of margin improvement on marketing spend despite increased activity in line with net sales growth. The increase in other operating expenses resulted from lapping the profit on the sale of UB shares, as well as incremental productivity related costs and non-recurring costs in the period. These costs were partially offset by benefits related to the productivity programme.

 

    

    

    

    

    

    

 

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Basic earnings per share (pence)

Basic eps increased from 56.1 pence to 60.3 pence

Eps before exceptional items increased from 51.3 pence to 62.0 pence

 

LOGO 1.39 12.05 3.50 0,09 60.3 (0.22) 56.1 (1.68) (4.43) (4.32) (2.19) F16 H1 Exceptional Discontinued Exchange on Acquisitions Organic Associates Net finance Tax Non-controlling F17 H1 items(i) operations operating profit and disposals operating profit and joint charges interests after tax growth (ii) ventures

 

 

(i) Exceptional items net of tax for the six months ended 31 December 2015 included a net gain from the sale of non-core assets.
(ii) Excluding exchange

Basic eps was impacted by lower exceptional income compared to the prior period and a discontinued operations charge in respect of an agreement with the UK Thalidomide Trust. Favourable exchange and operating profit growth also contributed to overall eps growth, although eps was negatively impacted by the increased tax rate.

 

    

    

    

    

    

    

 

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Net cash from operating activities and free cash flow (£ million)

Net cash from operating activities(i) was £1,267 million, an increase of £230 million compared to the

same period last year

 

LOGO 108 29 303 1 267 (158) (52) 1 037 F16 H1 Exchange Operating profit Working capital Interest and tax Other F17 H1

Free cash flow was £1,084 million, an increase of £245 million

 

LOGO 29 108 303 1084 (158) (49) 839 12 F16 H1 Capex Exchange(ii) Operating Working capital Interest and tax Other(iv) F17 H1 profit(iii)

 

 

(i) Net cash from operating activities excludes net capex, loans and other investments ((£183) million in 2016 – (£198) million in 2015)
(ii) Exchange on operating profit before exceptional items.
(iii) Operating profit excluding exchange, depreciation and amortisation, post employment payments and non cash items but including operating exceptional items
(iv) Other items include post employment payments, dividends received from associates and joint ventures, loans and other investments.

 

    

    

    

    

    

    

 

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Free cash flow improved £245 million in the six months ended 31 December 2016 driven by favourable exchange and higher organic operating profit growth, partially offset by higher tax payments. Working capital improved driven mainly by extended settlement terms, which positively impacted creditors and favourable provisions, partially offset by higher debtor balances.

Return on invested capital (%)(i)

The return on closing invested capital of 14.1% for the six months ended 31 December 2016, calculated as profit for the year divided by net assets as of 31 December 2016, decreased by 130bps compared to the six months ended 31 December 2015 principally due to the increase in net assets driven by the weakening of sterling against a number of currencies.

Return on average invested capital (ROIC)(i) increased 186 bps

 

LOGO 84bps 28bps 18bps 15,71% 150bps 6bps (100)bps 13,85% F16 H1 Exchange Acquisitions and Organic Associates and Tax Other F17 H1 disposals operating profit joint ventures growth

 

 

(i) ROIC calculation excludes exceptional items.

ROIC before exceptional items increased 186bps mainly driven by favourable exchange and organic operating profit growth, partially offset by higher tax charges.

 

    

    

    

    

    

    

 

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Additional financial information

Summary income statement

 

    

    31 December

2015

   

    Exchange

(a)

   

Acquisitions

  and disposals

(b)

   

Organic

    movement(ii)

   

      Reclassifi-

cation(iii)

   

    31 December

2016

 
     £ million     £ million     £ million     £ million     £ million     £ million  

Sales

     8,267        1,227        (271     392               9,615   

Excise duties

     (2,661     (374     35        (122     (72     (3,194
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

     5,606        853        (236     270        (72     6,421   

Cost of sales(i)

     (2,292     (338     171        (78     72        (2,465
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     3,314        515        (65     192               3,956   

Marketing

     (822     (113     10        17               (908

Other operating expenses(i)

     (775     (99     13        (122            (983
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit before exceptional items

     1,717        303        (42     87               2,065   

Exceptional operating items (c)

     (104               
  

 

 

           

 

 

 

Operating profit

     1,613                2,065   

Non-operating items (c)

     211                20   

Net finance charges

     (176             (182

Share of after tax results of associates and joint ventures

     136                171   
  

 

 

           

 

 

 

Profit before taxation

     1,784                2,074   

Taxation (d)

     (296             (436
  

 

 

           

 

 

 

Profit from continuing operations

     1,488                1,638   

Discontinued operations (c)

                    (55
  

 

 

           

 

 

 

Profit for the period

     1,488                1,583   
  

 

 

           

 

 

 

 

 

(i) Before exceptional operating items, see page F-11.
(ii) For the definition of organic movement see page 43.
(iii) Following a review of the third party production arrangements in India at 30 June 2016 it was determined that it would be more appropriate to ensure consistent reporting by reclassifying the excise duties payable by the third party production companies in India as excise duties. As a result there was a reclassification of the reported figures for the six months ended 31 December 2015 which resulted in a reduction in net sales of £72 million with a corresponding decrease in cost of sales. There was no impact on gross or operating profit. The comparative information has not been restated as the amounts involved are not material.

(a) Exchange

The impact of movements in exchange rates on reported figures is principally in respect of the weakening of sterling against the US dollar, the euro, the Kenyan schilling and the Indian rupee, partially offset by the Nigerian naira.

 

    

    

    

    

    

    

 

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The effect of movements in exchange rates and other movements on profit before exceptional items and taxation for the six months ended 31 December 2016 is set out in the table below.

 

            Gains/
(losses)
£ million
 

Translation impact

        225   

Transaction impact

        78   
     

 

 

 

Operating profit before exceptional items

        303   
     

 

 

 

Net finance charges — translation impact

        (21

Mark to market impact of IAS 39 on interest expense

        5   

Impact of IAS 21 and IAS 39 on net other finance charges

        (3
     

 

 

 

Net finance charges

        (19

Associates — translation impact

        27   
     

 

 

 

Profit before exceptional items and taxation

        311   
     

 

 

 
     Six months ended
  31 December 2016
     Six months ended
  31 December 2015
 

Exchange rates

     

Translation £1 =

     $1.27         $1.52   

Transaction £1 =

     $1.44         $1.57   

Translation £1 =

     €1.16         €1.39   

Transaction £1 =

     €1.24         €1.33   

(b) Acquisitions and disposals

The impact of acquisitions and disposals on the reported figures was primarily attributable to the disposals of Desnoes & Geddes Limited (D&G), the Red Stripe business in Jamaica, on 7 October 2015 and the group’s wine businesses in the United States and the UK Percy Fox wine business on 1 January 2016.

(c) Exceptional items

There were no exceptional operating items in the six months ended 31 December 2016.

Exceptional operating charges in the six months ended 31 December 2015 comprised an impairment charge in respect of the Ypióca brand and goodwill of £104 million.

Non-operating items in the six months ended 31 December 2016 were a net gain of £20 million before tax compared to a gain of £211 million before tax in the comparative period, a decrease of £191 million.

Non-operating items in the six months ended 31 December 2016 comprised a net gain of £20 million in respect of the sale of Diageo’s wine interests in the United States arising from the release of Diageo from a guarantee in respect of the vineyards, net of the settlement of the net working capital balance with Treasury Wine Estates on the date of disposal.

Non-operating items of £211 million in the six months ended 31 December 2015 comprised:

 

    a gain of £457 million in respect of the sale of Diageo’s 57.87% shareholding in the group’s Jamaican Red Stripe business and a 49.99% stake in Diageo’s Singapore and Malaysian beer businesses.
    a loss of £123 million in the period in respect of the sale of the majority of Diageo’s wine interests in the United States and its UK based Percy Fox businesses.
    a loss of £28 million in respect of sale of Diageo’s equity interests in Diageo’s South African associate interests.

 

    

    

    

    

    

    

 

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    a net loss of £3 million in respect of other disposals.
    a provision for a guarantee provided by Diageo for a loan of $135 million (£92 million) given by Standard Chartered Bank (SCB) to Watson Limited. The underlying security package for the loan remains in place.

See page 44 for the definition of exceptional items.

Discontinued operations of £55 million (net of deferred tax of £9 million) comprise additional amounts payable to the UK Thalidomide Trust following an agreement reached in December 2016, updates to the discount and inflation rates applied to the existing thalidomide provision and legal costs.

Cash payments in the six months ended 31 December 2016 for exceptional restructuring were £7 million representing the utilisation of a prior year provision (2015 — £33 million). In the comparable period there was a £92 million payment deposit into an escrow account with SCB in respect of the Watson guarantee (see note [11(a)] for further details).

(d) Taxation

The reported tax rate for the six months ended 31 December 2016 was 21.0% compared with 16.6% for the six months ended 31 December 2015. The increase is mainly driven by exceptional items in the six months period ended 31 December 2015.

The tax rate before exceptional items for the six months ended 31 December 2016 was 20.9% compared with 19.0% in the six months ended 31 December 2015. It is expected that the tax rate before exceptional items for the year ending 30 June 2017 will be approximately 21%.

(e) Dividend

The group aims to increase the dividend at each half-year and the decision as to the rate of the dividend increase is made with reference to dividend cover as well as the current performance trends including top and bottom line together with cash generation. Diageo targets dividend cover (the ratio of basic earnings per share before exceptional items to dividend per share) within the range of 1.8-2.2 times. For the year ended 30 June 2016 dividend cover was 1.5 times. It is expected that dividend increases will be maintained at roughly a mid-single digit rate until cover is back in range.

An interim dividend of 23.7 pence per share will be paid to holders of ordinary shares and ADRs on the register as of 24 February 2017. The ex-dividend date is 23 February 2017. This represents an increase of 5% on last year’s interim dividend. The interim dividend will be paid to shareholders on 6 April 2017. Payment to US ADR holders will be made on 11 April 2017. A dividend reinvestment plan is available to holders of ordinary shares in respect of the interim dividend and the plan notice date is 16 March 2017.

 

    

    

    

    

    

    

 

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Movement in net borrowings

 

     2016
            £ million
    2015
            £ million
 

Net borrowings at 30 June

     (8,635     (9,527

Free cash flow (a)

     1,084        839   

Acquisition and sale of businesses (b)

     (31     643   

Proceeds from issue of share capital

     1          

Net purchase of own shares for share schemes (c)

     (49     (20

Dividends paid to non-controlling interests

     (44     (56

Purchase of shares of non-controlling interests

            (21

Net movements in bonds (d)

     (461     (489

Net movements in other borrowings (e)

     549        94   

Equity dividends paid

     (920     (876
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     129        114   

Net (increase)/decrease in bonds and other borrowings

     (88     395   

Exchange differences (f)

     (271     (259

Borrowings disposed through sale of businesses

            7   

Other non-cash items

     (71     42   
  

 

 

   

 

 

 

Net borrowings at 31 December

     (8,936     (9,228
  

 

 

   

 

 

 

 

 

(a) See page 16 for the analysis of free cash flow.

(b) In the six months ended 31 December 2016 acquisitions and sale of businesses include part of the settlement of the guarantee in respect of the US wines disposal partially offset by the working capital settlement received from Treasury Wine Estates.

In the six months ended 31 December 2015 acquisitions and sale of businesses include the disposal of the group’s shareholdings in its Jamaican Red Stripe business and Malaysian beer business and the South African associate interests.

(c) Net purchase of own shares comprised purchase of treasury shares for the future settlement of obligations under the employee share option schemes of £86 million (2015 – £39 million) less receipts from employees on the exercise of share options of £37 million (2015 – £19 million).

(d) In the six months ended 31 December 2016, the group repaid bonds of $600 million (£461 million). In the comparable period the group repaid bonds of $750 million (£489 million).

(e) In the six months ended 31 December 2016 net movements in other borrowings are driven by the settlements of the cross currency interest rate swaps and the cash movements on foreign currency swaps and forwards.

(f) Net borrowings increased because of adverse exchange differences primarily on the US dollar and euro denominated borrowings partially offset by a favourable movement on foreign exchange swaps and forwards.

 

    

    

    

    

    

    

 

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Movement in equity

 

     2016
            £ million
    2015
            £ million
 

Equity at 30 June

     10,180        9,256   

Profit for the period

     1,583        1,488   

Exchange adjustments (a)

     304        81   

Net remeasurement of post employment plans (net of tax)

     234        (185

Exchange recycled to the income statement

            43   

Fair value movements on available-for-sale investments

            (20

Purchase of shares of non-controlling interests

            (21

Disposal of non-controlling interest

            (24

Dividends to non-controlling interests

     (44     (56

Dividends paid

     (920     (876

Other reserve movements

     (84     (9
  

 

 

   

 

 

 

Equity at 31 December

     11,253        9,677   
  

 

 

   

 

 

 

 

 

(a) Movement in the six months ended 31 December 2016 primarily arose from exchange gains in respect of the US dollar, the Indian rupee and the euro partially offset by the exchange loss in respect of the Turkish lira.

Post employment plans

The deficit in respect of post employment plans before taxation decreased by £321 million from £1,193 million at 30 June 2016 to £872 million at 31 December 2016. The decrease primarily arose due to an increase in the market value of the assets held by the post employment schemes partially offset by an increase in long term inflation rates (UK RPI from 2.8% to 3.3%, UK CPI from 1.8% to 2.3% and Ireland CPI from 1.4% to 1.7%) and decrease in returns from ‘AA’ rated corporate bonds used to calculate the discount rates on the liabilities of the post employment plans (UK from 2.9% to 2.8%). Total cash contributions by the group to all post employment plans in the year ending 30 June 2017 are estimated to be approximately £220 million.

Analysis by reporting segments

The organic movements for volume, net sales, marketing spend and operating profit before exceptional items by reporting segments for the six months ended 31 December 2016 were as follows:

 

                                                                                                                               
     Volume     Net sales      Marketing      Operating profit(i)  

Reported growth by region

   %     EUm     %      £ million      %      £ million      %     £ million  

North America

            (0.1     16         305         16         43         26        210   

Europe, Russia and Turkey

                   13         173         5         11         19        85   

Africa

     3        0.5        13         92         14         10         (4     (6

Latin America and Caribbean

     (1     (0.1     20         106         3         3         33        51   

Asia Pacific

     (2     (1.2     12         132         11         17         11        25   

Corporate

                   41         7         100         2         (25     (17
    

 

 

      

 

 

       

 

 

      

 

 

 

Diageo

     (1     (0.9     15         815         10         86         20        348   
    

 

 

      

 

 

       

 

 

      

 

 

 

 

    

    

    

    

    

    

 

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Table of Contents
                                                                                                                               
     Volume      Net sales      Marketing     Operating profit(i)  

Organic growth by region

   %      EUm      %      £ million      %     £ million     %     £ million  

North America

     1         0.3         3         67         1        2        6        59   

Europe, Russia and Turkey

     3         0.6         5         76         (2     (4     6        32   

Africa

     3         0.5         4         32         3        2        2        3   

Latin America and Caribbean

                     11         60         (6     (6     13        23   

Asia Pacific

     2         0.8         3         32         (6     (11     (6     (16

Corporate

                     14         3                       (20     (14
     

 

 

       

 

 

      

 

 

     

 

 

 

Diageo

     2         2.2         4         270         (2     (17     4        87   
     

 

 

       

 

 

      

 

 

     

 

 

 

 

 

(i) Before operating exceptional items.

 

    

    

    

    

    

    

 

23


Table of Contents

North America

Net sales

Net sales were £2,172 million in the six months ended 31 December 2016 an increase of £305 million compared to net sales of £1,867 million in the six months ended 31 December 2015. Net sales were favourably impacted by exchange rate movements of £364 million primarily due to the strength of the US dollar against sterling and organic growth of £67 million (see further performance analysis below) partially offset by the loss of £126 million of net sales due to disposal of the wine businesses in the United States in January 2016.

Operating profit

Operating profit was £1,019 million in the six months ended 31 December 2016 an increase of £210 million compared to operating profit of £809 million in the six months ended 31 December 2015. Operating profit benefited £163 million from exchange rate movements primarily due to the strength of the US dollar and organic growth of £59 million, partially offset by the loss of £12 million operating profit on the disposal of the wine businesses in the United States in January 2016.

Further performance analysis

Unless otherwise stated percentage movements refer to organic movements in the following analysis.

North America delivered net sales growth of 3% and performance improved in each market: US Spirits, Diageo Beer Company USA and Canada. US Spirits net sales grew 4% with volume growth and positive mix. Depletions grew faster than shipments with continued focus on inventory management to drive operational and working capital efficiencies internally and through our distributor channels. North American whisk(e)y, scotch and tequila delivered the strongest category performance. North American whisk(e)y net sales grew 15% as Crown Royal and Bulleit continued to gain share in a vibrant category. Scotch growth was driven by reserve variants and Johnnie Walker Black Label, with net sales up 11% and 9%, respectively. Smirnoff depletion volume grew although net sales were down on further price adjustments and negative mix. Performance of Captain Morgan, Baileys, Tanqueray and Buchanan’s improved although net sales was impacted by inventory management. DBC USA net sales grew 3% with ready to drink growing and beer stabilising. Net sales in Canada were up 5%. Marketing in North America increased 1% with increased activity partially funded by procurement savings and other efficiencies. Operating margin increased 131bps as positive mix and productivity initiatives delivered gross margin expansion, with marketing efficiencies, and zero based budgeting driving lower costs.

 

                                                                                                                                                           

Key financials:

   F16 H1
£ million
    Exchange
£ million
    Acquisitions
and
disposals
£ million
    Organic
movement
£ million
    F17 H1
£ million
    Reported
movement
%
 

Net sales

     1,867        364        (126     67        2,172        16   

Marketing

     275        50        (9     2        318        16   

Operating profit

     809        163        (12     59        1,019        26   

 

                                                                                                       

Markets and categories:

   Organic
volume
movement
%
    Reported
volume
movement
%
    Organic
net sales
movement
%
    Reported
net sales
movement
%
 

North America

     1               3        16   
        

US Spirits

     1               4        17   

DBC USA

            (8     3        14   

Canada

     4        3        5        21   
        

Spirits

     1        1        3        24   

Beer

     (3     (14     (1     7   

Ready to drink

     3        3        4        25   

 

    

    

    

    

    

    

 

24


Table of Contents
                                                                             

Global giants, local stars and reserve(i):

   Organic
volume
movement(ii)
%
    Organic
net sales
movement
%
    Reported
net sales
movement
%
 

Crown Royal

     15        17        40   

Smirnoff

     (1     (4     16   

Captain Morgan

            (1     18   

Johnnie Walker

     4        5        25   

Ketel One vodka

     (5     (9     9   

Cîroc

     8        6        27   

Baileys

     (7     (7     11   

Guinness

     (2            20   

Tanqueray

                   19   

Don Julio

     9        10        32   

Bulleit

     27        29        54   

Buchanan’s

     (1     (2     17   

 

 

(i) Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement.

 

  Net sales in US Spirits were up 4% building on the momentum of last year. Diageo’s North American whisk(e)y brands, Crown Royal and Bulleit, delivered strong net sales growth and continued share gains. Crown Royal net sales increased 17% with the launch of Crown Royal Vanilla and as Crown Royal Regal Apple continued to recruit new consumers in its third year after launch. Johnnie Walker net sales grew 8% with growth in Johnnie Walker Black Label and reserve variants as the brand launched a new campaign ‘Keep Walking America’, scaled up mentoring and focused on festive gifting. Cîroc performance improved in the first half, as the brand benefited from the earlier innovation launch this half. Smirnoff is focused on reminding its core consumer base of its strong credentials as an award winning, quality vodka and bringing fresh news to the brand through seasonal innovations like Smirnoff Peppermint Twist. These measures together with a more focused flavours portfolio and last year’s launch of Smirnoff Sourced, led to depletion volume growth. Captain Morgan made strong share gains in a weak rum category with continued focus in the on-trade, activation to recruit multi-cultural consumers and the launch of Jack-O’Blast, a limited edition pumpkin spiced rum shot for the holiday season. Pricing adjustments continued on Smirnoff and Captain Morgan, and were also made on Ketel One vodka to ensure competitiveness. Smirnoff also experienced negative mix from higher sales of its largest format. Don Julio net sales grew 10% building on the momentum of last year. Buchanan’s, Tanqueray and Baileys share gains accelerated in the half. Inventory changes impacted net sales performance of Captain Morgan, Buchanan’s, Crown Royal Deluxe, Baileys and Tanqueray.
  DBC USA (Diageo Beer Company USA) net sales increased 3% with ready to drink growing 5% and beer performance stabilising. Ready to drink growth was driven by the recent launch of Smirnoff Spiked Sparkling Seltzer and Smirnoff Electric which was launched last year, and the solid performance of Smirnoff Ice, which benefited from a packaging and liquid renovation and a football programme focused on women. Guinness net sales grew 1% while Smithwick’s and Harp were weaker.
  Net sales in Canada grew 5%, largely driven by growth in Crown Royal, Smirnoff and ready to drink. Crown Royal continued to benefit from the ‘We Make Whisky The Canadian Way’ campaign, which highlights the brand’s quality and craftmanship and from the launch of Crown Royal Vanilla and Crown Royal Northern Harvest Rye. Smirnoff continued its association with music integrating the Smirnoff Sound Collective programme into festival and on-premise activations. Ready to drink growth was driven by the launch of Smirnoff Electric and Smirnoff Bellini.
  Marketing spend grew 1% as increased activity on key brands was funded by procurement savings and other efficiencies.

 

    

    

    

    

    

    

 

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Table of Contents

Europe, Russia and Turkey

Net sales

Net sales were £1,534 million for the six months ended 31 December 2016 an increase of £173 million compared to net sales of £1,361 million in the six months ended 31 December 2015. Net sales benefited by £149 million from exchange rate movements driven mainly by the euro, Turkish lira and Russian rouble, and organic growth of £76 million (see further performance analysis below). Net sales decreased by £75 million as a result of disposals principally the Percy Fox wine business in January 2016 and the ending of the Grand Marnier distribution agreement in June 2016 but benefited by £23 million from businesses from Middle East and North African countries that were formerly reported in the Asia Pacific and Africa regions.

Operating profit

Operating profit was £535 million in the six months ended 31 December 2016 an increase of £85 million compared to operating profit of £450 million in the six months ended 31 December 2015. Operating profit benefited by £53 million from exchange rate movements principally due to the strengthening of the euro, Turkish lira, and Russian rouble against sterling, organic growth of £32 million partially offset by the loss of £10 million that businesses that have been disposed of contributed in the six months ended 31 December 2015. Operating profit also benefited by £10 million from Middle East and North African countries that were formerly reported in the Asia Pacific and Africa regions.

Further performance analysis

Unless otherwise stated percentage movements refer to organic movements in the following analysis.

The region’s performance reflects stronger performance in Europe, and good net sales growth in Russia and Turkey. In Europe, net sales were up 5% with Continental Europe the main contributor. Johnnie Walker and Baileys performed strongly driven by execution against core growth drivers, communication of brand purpose, in-store activation and sampling. Guinness net sales were up 2% supported by a solid performance of Hop House 13 Lager and Tanqueray grew net sales double digit in most countries across Europe. Reserve brands continued to perform well. In Russia, price rises reflecting currency weakness in a tough economic and exchange environment led to a net sales increase of 6% with volume down 7%. In Turkey volume was down 5% but price increases drove net sales up 5%. Gross margins were up across the three markets driven by positive mix in Europe and price in Russia and Turkey. Operating margin in the region increased 37bps mainly driven by the ongoing productivity work and positive price/mix.

 

                                                                                                                                                                                     

Key financials:

   F16 H1
£ million
    Exchange
£ million
    Reclassifi-
cation(i)
£ million
    Acquisitions
and
disposals
£ million
    Organic
movement

£ million
    F17 H1
£ million
    Reported
movement
%
 

Net sales

     1,361        149        23        (75     76        1,534        13   

Marketing

     218        13        4        (2     (4     229        5   

Operating profit

     450        53        10        (10     32        535        19   

 

(i) Reclassification for markets which were formerly reported in the Asia Pacific and Africa regions and are now included in Europe, Russia and Turkey. Prior period figures have not been restated for this change.

 

                                                                                                       

Markets and categories:

   Organic
volume
movement
%
    Reported
volume
movement
%
    Organic
net sales
movement
%
    Reported
net sales
movement
%
 

Europe, Russia and Turkey

     3               5        13   
        

Europe

     4        (1     5        10   

Russia

     (7     (7     6        29   

Turkey

     (5     (5     5        15   
        

Spirits

     3        4        6        19   

Beer

     1        (3            9   

Ready to drink

     1        2        (5     3   

 

    

    

    

    

    

    

 

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Table of Contents
                                                                             

Global giants and local stars(i):

   Organic
volume
movement(ii)
%
    Organic
net sales
movement
%
    Reported
net sales
movement
%
 

Guinness

     2        2        12   

Johnnie Walker

     11        12        38   

Smirnoff

     (2     (3     4   

Baileys

     12        10        22   

Yenì Raki

     (4     5        16   

Captain Morgan

     12        12        23   

JεB

     9        8        28   

Tanqueray

     31        26        44   

 

 

(i) Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement except Johnnie Walker 21% and JeB 11% which were impacted by the reclassification of Middle Eastern and North African countries to the region.

 

  In Europe net sales were up 5%:
    In Great Britain, focus on route to consumer led to share gains, although net sales were broadly flat as changes in the commercial footprint led to efficiencies, including inventory reduction. Baileys performance improved with net sales up 2% driven by increased on-trade activations especially around Christmas in the off-trade. Guinness net sales were flat, lapping last year’s ‘Rugby World Cup’, but it gained 10bps of share driven by improved distribution and innovation success with Hop House 13 Lager. Tanqueray net sales grew 42% due to expanded distribution. Reserve brands experienced solid growth driven by scotch and Tanqueray No. TEN. Smirnoff recovered momentum gaining share both in off-trade and on-trade, but net sales were down 6%.
    In Ireland, net sales grew 1%. High double digit growth in the premium and reserve brands contributed to a share gain in spirits. Guinness net sales were up 3%, driven by the continued success of Hop House 13 Lager which had a strong performance in the on-trade and more recently in the off-trade.
    In France, net sales were up 1%. Continued strong performance of Captain Morgan and the scotch malts Cardhu and Knockando, was partially offset by weakness in Smirnoff including ready to drink.
    In Continental Europe net sales were up 11%:
    Net sales in Iberia were up 15%, driven by a stronger on-trade but primarily the comparison to the prior period, when inventory was reduced following changes to the commercial footprint. JeB and Johnnie Walker net sales grew in the high teens and Baileys performed strongly, supported by increased investment. Smirnoff performance also improved with net sales up 21% which contributed to on-trade share gain.
    In Germany, Austria and Switzerland, net sales grew 17% driven by double digit growth in Baileys, Johnnie Walker and Tanqueray. Diageo’s scotch and liqueur brands grew strongly resulting in overall share gains in Germany.
    Benelux net sales were down 6% impacted by a significant tax increase implemented in November last year in Belgium.
    In Italy, net sales were up single digit driven by solid momentum in the off-trade. Scotch declined 2%. Gin continued its double digit growth momentum and Captain Morgan delivered growth contributing to a 2pps share gain in rum.
    In Greece, net sales were flat. Johnnie Walker and single malts performed well driven by consistent shopper focused activity which effectively communicated brand benefits and contributed to increased in-store activation.
    Net sales in Poland were up 13% due to the performance improvement of the scotch and reserve brands.
    Europe Partner Markets grew 19% due to the implementation of new route to market capabilities which expanded the distributors’ footprints and improved in-store execution. Johnnie Walker and JeB grew 22% and 49%, respectively.
  Performance in Russia continued to be impacted by the economy. Price increases were implemented to offset currency devaluation with net sales growth of 6% driven by Bell’s and Johnnie Walker. However, this resulted in a 7% loss of volume and share declined as the price increases on scotch were higher relative to the competition.
  In Turkey, net sales grew 5% driven by growth in all raki variants and the continued premiumisation trend of the category together with price increases. Johnnie Walker net sales increased 14%.
  Marketing spend declined 2% as a result of productivity initiatives which improved the effectiveness of the brand investment, driving in-store execution and activations in the on-trade and off-trade channels. Marketing investment continues to focus on key growth opportunities for the region in reserve, gin, beer, rum and innovation.

 

    

    

    

    

    

    

 

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Table of Contents

Africa

Net sales

Net sales were £808 million in the six months ended 31 December 2016 an increase of £92 million compared to net sales of £716 million in the six months ended 31 December 2015. Net sales benefited by £54 million from exchange rate movements primarily due to the strengthening of the Kenyan schilling and the South African rand partially offset by the weakness of the Nigerian naira. In addition, net sales benefited by £20 million following the transfer of the ready to drink and beer business from a former associate to a subsidiary partially offset by the impact of disposals of businesses of £6 million and the North African businesses being reported by the Europe, Russia and Turkey region of £8 million. Organic net sales improved by £32 million (see further performance analysis below).

Operating profit

Operating profit was £132 million in the six months ended 31 December 2016 a decrease of £6 million compared to operating profit of £138 million in the six months ended 31 December 2015. Operating profit benefited by £10 million from exchange rate movements driven by the Kenyan schilling and South African rand partially offset by the weakening of the Nigerian naira. Operating profit was adversely impacted by £14 million principally due to the restructuring of the South African operations in the six months ended 31 December 2016 and £5 million because of the transfer of the North African businesses to the Europe, Russia and Turkey region. There was an organic increase of £3 million.

Further performance analysis

Unless otherwise stated percentage movements refer to organic movements in the following analysis.

In Africa, performance improved with net sales up 4%. Beer performance was impacted by the significant increase in duty on bottled beer in Kenya with Guinness down 22%, Tusker down 15% and the comparison against the double digit growth in Guinness in Nigeria in the prior period. This offset the strong growth of, Satzenbrau, up 108%, and Senator, up 17% and net sales growth of beer in Africa Regional Markets of 7% with the relaunch of Meta in Ethiopia and the growth of Guinness supported by the ‘Made of Black’ Guinness campaign. Across the region, mainstream spirits net sales grew 20%, driven by the strong performance of Smirnoff 1818 and Kenya Cane which benefited from a consumer shift from beer to mainstream spirits. Premium spirits grew 13% with growth coming from Johnnie Walker Black Label in Africa Regional Markets and Nigeria. Operating margin decreased 37bps due primarily to the impact of adverse mix in Nigeria and East Africa. This was partially offset by COGS savings, changes to improve organisational effectiveness and benefits from zero based budgeting across the region.

 

                                                                                                                                                                                     

Key financials:

   F16 H1
£ million
    Exchange
£ million
    Reclassifi-
cation(i)
£ million
    Acquisitions
and
disposals
£ million
    Organic
movement
£ million
    F17 H1
£ million
    Reported
movement
%
 

Net sales

     716        54        (8     14        32        808        13   

Marketing

     74        4        (1     5        2        84        14   

Operating profit

     138        10        (5     (14     3        132        (4

 

(i) Reclassifications comprise Algeria and Morocco which were formerly reported in the Africa region and are now included in Europe, Russia and Turkey. Prior period figures have not been restated for this change.

 

    

    

    

    

    

    

 

28


Table of Contents
                                                                                                       

Markets and categories:

   Organic
volume
movement
%
    Reported
volume
movement
%
     Organic
net sales
movement
%
    Reported
net sales
movement
%
 

Africa

     3        3         4        13   
         

East Africa

     5        5                19   

ARM

                    6        22   

Nigeria

     7        7         6        (19

South Africa

     (2     4         10        42   
         

Spirits

     7        4         17        26   

Beer

     1        1         (1     5   

Ready to drink

     (11     15         (6     25   

 

                                                                             

Global giants and local stars(i):

   Organic
volume
movement(ii)
%
    Organic
net sales
movement
%
    Reported
net sales
movement
%
 

Guinness

     (8     (8     (7

Johnnie Walker

     1        12        11   

Smirnoff

     5        33        56   

Other beer:

      

Malta Guinness

     (13     (5     (13

Tusker

     (12     (13       

Senator

     13        17        42   

Satzenbrau

     72        108        59   

 

(i) Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement except for Johnnie Walker (11)% which was impacted by the reclassification of Algeria and Morocco to the Europe, Russia and Turkey region.

 

  In Nigeria, net sales increased 6% with spirits growth of 47% being the main driver. This was built on mainstream spirits, up 135%, driven by the successful launch of brands including McDowell’s, which is now produced locally at Benin with increased focus and support behind mainstream brands. Increased investment behind Johnnie Walker delivered 22% growth. Beer net sales grew 1% as the performance of Satzenbrau, where net sales doubled following targeted investment, offset the decline in Guinness of 11% and Malta Guinness of 14%, which grew strongly in the prior period with sales up 41%. Within ready to drink Smirnoff grew strongly but it did not offset the decline in Orijin, now also available in smaller formats to help realign pricing and improve competitiveness. The recent launch of Orijin Zero is extending reach into the non-alcoholic drinks market.
  East Africa, net sales were flat with 17% increase in Senator net sales and strong spirits growth of 24% offset by the impact of the duty increase on bottled beer which was down 16%. Mainstream spirits grew 26% led by Kenya Cane and the innovation, Kenya Cane Coconut. In value beer, strong growth in Senator and Pilsner was supplemented by Ngule a new value price point innovation in Uganda. Reserve brands grew 11% following enhanced outlet partnerships and activation supported by brand ambassadors.
  In Africa Regional Markets, net sales grew 6% reflecting the strong growth in Ethiopia and Cameroon, supported by Ghana. Markets continued to benefit from the enhanced route to consumer delivering improved distribution, availability and execution.
    In Ethiopia, net sales increased 46% driven by Meta, up 44%, following the relaunch last year and the Azmera innovation.
    In Cameroon, net sales growth of 5% was driven largely by ready to drink up 114%. This was led by Orijin ready to drink following the launch last year. Spirits also contributed to the good performance driven predominately by Johnnie Walker Black Label, up 79%, which offset the decline on Malta Guinness of 38% arising from strong competition in this category. In beer, Guinness grew 2%.
  Ghana net sales increased 4% as net sales growth in beer and ready to drink offset a decline in spirits driven by Orijin Bitters which lapped its launch. In beer, Guinness net sales were up 14% as the brand benefited from the ‘First Beer On Us’ campaign. Growth in Malta Guinness, up 14%, has offset declines in other beer brands, predominantly Star. Momentum continued in ready to drink, with net sales up 27% driven by Orijin.

 

    

    

    

    

    

    

 

29


Table of Contents
  South Africa net sales grew 10% driven by growth in mainstream spirits led by Smirnoff 1818. In premium spirits, scotch returned to growth with all brands contributing and Johnnie Walker benefiting from significant focus and investment as well as the launch of Johnnie Walker Green Label and up weighted gifting activity on Johnnie Walker Blue Label.
  Marketing was up 3% in the region with investment prioritised behind the biggest growth opportunities and with proven sales drivers. In Nigeria, marketing has been focused on key campaigns including Satzenbrau Smart Choice. In Africa Regional Markets, marketing campaigns and activation programmes behind Guinness and Orijin contributed to the increase in marketing. South Africa increased investment behind Johnnie Walker and the reserve portfolio.

 

    

    

    

    

    

    

 

30


Table of Contents

Latin America and Caribbean

Net sales

Net sales were £628 million in the six months ended 31 December 2016 an increase of £106 million compared to net sales of £522 million in the six months ended 31 December 2015. Exchange rate movements benefited net sales by £77 million primarily due to the strengthening of the Brazilian real, Mexican peso and Colombian peso. Disposals of the Red Stripe Jamaican business in October 2015 and the restructuring of the Argentinian business reduced net sales by £31 million. Organic growth was £60 million (see further performance analysis below).

Operating profit

Operating profit was £205 million in the six months ended 31 December 2016, an increase of £155 million compared to operating profit of £50 million in the six months ended 31 December 2015. There were no exceptional operating items in the six months ended 31 December 2016 compared to a £104 million charge in the six months ended 31 December 2015 when the group impaired the Ypióca brand and related tangible fixed assets and goodwill allocated to the Paraguay, Uruguay and Brazil (PUB) cash-generating unit. Operating profit before exceptional items increased by £51 million in the six months ended 31 December 2016 against the comparable period. Operating profit before exceptional items benefited by £34 million from exchange rate movements mainly driven by the Brazilian real, Colombian peso and Mexican peso. Organic growth of £23 million was partially offset by £6 million as a result of the disposal of the Red Stripe Jamaican operation and restructuring of the Argentinian wine business.

Further performance analysis

Unless otherwise stated percentage movements refer to organic movements in the following analysis.

Net sales grew 11% in LAC, reflecting a strong recovery. Brazil remained weak but Mexico, Andean and CCA performed strongly. Performance in Mexico with net sales up 21% was led by scotch and 31% growth in Don Julio. The Andean performance was driven by growth in Colombia with net sales up 29% driven by 31% volume growth in scotch. Diageo’s strategy in LAC is to expand our leadership position in scotch and broaden our portfolio. Scotch net sales grew 15%, led by Johnnie Walker and improved momentum for Buchanan’s with net sales up 46%. The net sales growth in rum and tequila was offset by a decline in vodka in Brazil and Mexico. Operating margin increased 60bps, primarily driven by positive mix, lower marketing spend in Brazil and marketing efficiencies in Colombia.

 

                                                                                                                                                           

Key financials:

   F16 H1
£ million
    Exchange
£ million
    Acquisitions
and
disposals
£ million
    Organic
movement
£ million
    F17 H1
£ million
    Reported
movement
%
 

Net sales

     522        77        (31     60        628        20   

Marketing

     96        13        (4     (6     99        3   

Operating profit before exceptional items

     154        34        (6     23        205        33   

Exceptional operating items

     (104               

Operating profit

     50              205        310   

 

    

    

    

    

    

    

 

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Table of Contents
                                                                                                       

Markets and categories:

   Organic
volume
movement
%
    Reported
volume
movement
%
    Organic
net sales
movement
%
    Reported
net sales
movement
%
 

Latin America and Caribbean

            (1     11        20   
        

PUB

     (6     (6     (6     26   

Mexico

     20        20        21        25   

CCA

     7        (5     10        4   

Andean

     (19     (19     30        56   

PEBAC

     3        12        5        (13
        

Spirits

     1        2        12        27   

Beer

     16        (38     25        (54

Ready to drink

     (25     (26     (7     17   

 

                                                                             

Global giants and local stars:

   Organic
volume
movement(ii)
%
    Organic
net sales
movement
%
    Reported
net sales
movement
%
 

Johnnie Walker

     1        8        20   

Buchanan’s

     44        46        57   

Smirnoff

     (12     (17     (2

Old Parr

     5        12        31   

Baileys

     7        7        17   

Ypióca

            (3     31   

Black and White

     40        3        21   

 

 

(i) Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement except for Smirnoff (5)% and Baileys 9% due to the impact of businesses disposed of.

 

  In PUB (Paraguay, Uruguay and Brazil), net sales declined 6%. In Brazil, net sales were down, driven by the slowing economy and lapping a comparable period which benefited from a pre-excise duty buy-in. Despite the challenging operating environment, with scotch net sales down, the business held share in scotch, delivered through Black and White’s growth in the primary scotch category following a price repositioning in the market. Ypióca net sales declined 3%. Net sales for reserve brands in PUB grew 12%, driven by Ketel One vodka and Johnnie Walker Gold Label Reserve. Net sales in Paraguay and Uruguay grew due to improved performance both domestically and in the export channels.
  Mexico net sales increased 21%. Scotch was the key growth driver with net sales up 20% on the back of strong volume growth, reflecting successful marketing campaigns and improved execution of commercial platforms. Buchanan’s net sales grew 12% with the Special Reserve variant up 27%. Johnnie Walker net sales grew 22%, with double digit volume growth from Johnnie Walker reserve brands and across core variants such as Johnnie Walker Red Label and Johnnie Walker Black Label. Black and White net sales grew 65% supported by expanded distribution and activation across the on- and off-trade driving strong recruitment into the category. Don Julio net sales grew 31%, with strong market share gains in a growing tequila category, reflecting the successful marketing campaign, activation and higher brand awareness. Although gaining share, Smirnoff net sales declined as the category contracted.
  CCA (Central America and Caribbean) delivered 7% volume growth and 10% net sales growth. The domestic markets net sales grew 4%, with scotch flat in Central America. Net sales in the export channels grew 25%, lapping the prior year inventory reduction programme in the market, however conditions remain challenging given the continued currency weakness against the US dollar.

 

    

    

    

    

    

    

 

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  Andean (Colombia and Venezuela) net sales grew 30%. Colombia delivered 26% volume growth and 29% net sales increase on stronger consumer demand and improved execution standards at the point of sale. There was strong growth in scotch with net sales up 31%. Old Parr grew net sales 9% with strong double digit growth for Johnnie Walker and Buchanan’s, which contributed to reserve brands net sales growth of 44%. This was driven by a focused reserve model targeting distribution, visibility, staff training and mentorship. In Venezuela, volume decreased 43% as volatility in the market continued. Although net sales grew significantly faster, with price increases in the high inflation environment, the business remains small with net sales of £6 million in the half.
  PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) delivered net sales growth of 5%. The growth in Chile and Bolivia was partially offset by a decline in Peru where economic conditions have impacted domestic demand. In Chile, net sales grew 16%, led by Johnnie Walker which grew 21%, driven by Johnnie Walker Black Label and Johnnie Walker Red Label, and the standard scotch brands. Leveraging the ‘Celebrate Together’ platform to drive recruitment into reserve brands, whilst diversifying the portfolio has delivered 8% net sales growth for reserve brands.
  Marketing declined 6% with reductions in Brazil partially offset by increased spend in Mexico which was focused on driving scotch performance through Johnnie Walker.

 

    

    

    

    

    

    

 

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Asia Pacific

Net sales

Net sales were £1,255 million in the six months ended 31 December 2016 an increase of £132 million compared to net sales of £1,123 million in the six months ended 31 December 2015. Net sales were favourably impacted by £205 million exchange rate movements principally due to the strengthening of the Indian rupee, Australian dollar and Korean won against sterling. Net sales reduced by £72 million following the reclassification to excise duties from cost of sales of excise duties payable by third party production companies in India and by a net £9 million following the transition of a number of operations from an owned to a franchise model during the calendar year. Net sales also reduced by £9 million due to the disposal of Bouvet and other wine businesses. In addition, the results of Lebanon and other Middle East countries, which amounted to £15 million in the six months ended 31 December 2015, were formerly reported in the Asia Pacific region and are for the six months ended 31 December 2016 included in Europe, Russia and Turkey. Net sales increased organically by £32 million (see further performance analysis below).

Operating profit

Operating profit was £259 million in the six months ended 31 December 2016 an increase of £25 million compared to operating profit of £234 million in the six months ended 31 December 2015. Operating profit benefited £47 million from exchange rate movements principally due to the strengthening of the Indian rupee and Australian dollar against sterling. In addition, the reclassification of Lebanon and other Middle East countries formerly reported in the Asia Pacific region and are now included in the Europe, Russia and Turkey region reduced operating profit by £5 million and the disposal of the Bouvet wine business reduced operating profit by £1 million. Operating profit declined by £16 million organically.

Further performance analysis

Unless otherwise stated percentage movements refer to organic movements in the following analysis.

Asia Pacific grew net sales 3% with significant growth in Greater China and solid performance in India, Australia and South East Asia. The continued contraction of the local whisky market in Korea led to a further decline in net sales and there was also weakness in travel retail in the region. In mainland China, net sales grew 44% as a result of strong underlying momentum in Chinese white spirits and an earlier Chinese New Year, and scotch returned to growth delivering a net sales increase of 7%. The business in India continues to strengthen although net sales growth of 4%, largely driven by IMFL whisky and scotch, was impacted by the government’s move to demonetise high value notes. South East Asia net sales grew 2%, as the mourning period in Thailand impacted performance. Australia net sales increased 3% driven by scotch. Operating margin declined 188bps, as India lapped the sale of shares in United Breweries Limited. Excluding this impact, operating margin would have increased 43bps, as positive mix and productivity initiatives delivered margin expansion.

 

                                                                                                                                                                               

Key financials:

   F16 H1
£ million
    Exchange
£ million
    Reclassifi-
cation(i)
£ million
    Acquisitions
and
disposals
£ million
    Organic
movement
£ million
    Asia Pacific
net sales
adjustment
£ million
    F17 H1
£ million
    Reported
movement
%
 

Net sales

     1,123        205        (15     (18     32        (72     1,255        12   

Marketing

     157        31        (3            (11            174        11   

Operating profit

     234        47        (5     (1     (16            259        11   

 

 

(i) Reclassification comprise Lebanon and other Middle East countries which were formerly reported in the Asia Pacific region and are now included in Europe, Russia and Turkey. Prior period figures have not been restated for this change.

 

    

    

    

    

    

    

 

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Markets and categories:

   Organic
volume
movement
%
    Reported
volume
movement
%
    Organic
net sales
movement
%
    Reported
net sales
movement
%
 

Asia Pacific

     2        (2     3        12   
        

India

     2        (2     4        3   

Australia

     2        2        3        29   

Greater China

     24        24        22        44   

South East Asia

     4        (5     2        15   

North Asia

     10        10        (2     23   

Travel Retail Asia and Middle East

     (20     (23     (18     (19
        

Spirits

     2        (2     4        11   

Beer

     (2     (3     2        25   

Ready to drink

     1        1               25   

 

                                                                             

Global giants and local stars(i):

   Organic
volume
movement(ii)
%
    Organic
net sales
movement
%
    Reported
net sales
movement
%
 

Johnnie Walker

            1        9   

McDowell’s

            3          

Windsor

     (15     (15     4   

Smirnoff

     (6     (7     9   

Guinness

     (3     1        24   

Bundaberg

     (3     1        26   

 

 

(i) Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement except for Johnnie Walker (4)%, Smirnoff (7)% and McDowell’s (4)% which were impacted by the reclassification of Lebanon and other Middle East countries to the Europe, Russia and Turkey region and the move from an owned to a franchise model in India.

 

  India net sales were up 4%, despite momentum being disrupted by the demonetisation in November and December. Prestige and above brands grew net sales 11%. Following its relaunch in February 2016, McDowell’s No.1 Whisky grew net sales 17% and gained share together with Royal Challenge which enjoyed double digit growth. The renovation of Signature in March 2016 has increased net sales 35%, supported by advertising and digital campaigns. Scotch grew 11% with Johnnie Walker net sales up 23% driven by strong performance across the variants. The integration of Diageo’s brands into USL has created a strong portfolio in India that participates across all price tiers in the IMFL and imported spirits segments. The focus on route to consumer continues to drive net sales growth and share gains on key brands through the ‘Perfect Outlet’ programme delivering increased distribution and better share of shelf.
  Australia net sales increased 3%. Growth in scotch and reserve brands was partially offset by a decline in ready to drink and vodka. The performance in scotch was supported by the relaunched Johnnie Walker ‘Keep Walking’ campaign, which helped Johnnie Walker grow net sales 17%. Reserve brands were up 24% driven by Johnnie Walker Blue Label, Lagavulin and Cîroc as consumers continue to premiumise within the spirits category. Whilst the ready to drink category remains challenged, the innovation launches of Bundaberg Lazy Bear, Pimm’s RTD and Smirnoff Pure have seen early success in addressing consumer demand for low tempo refreshing drinks.
  Greater China net sales grew 22%, driven by strong growth in mainland China. Chinese white spirits grew, benefitting significantly from an earlier Chinese New Year, with strong performance from Wellbay and Master Distiller No.8. Scotch grew net sales 5%, with share gains in deluxe and super deluxe categories in mainland China, driven by the performance of the Johnnie Walker portfolio in mainland China and Taiwan, partially offset by a decline in Hong Kong where the tough economic conditions have impacted the traditional on-trade.

 

    

    

    

    

    

    

 

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  South East Asia net sales grew 2%, with growth in Key Accounts and Indonesia, partially offset by declining net sales in Thailand and Vietnam. Indonesia net sales grew 5%, driven by growth in Johnnie Walker and the ready to drink category. The mourning period in Thailand impacted performance, with net sales declining 17% following the closure of on-trade outlets for the initial 30 days of mourning. Scotch saw marginal growth, driven by Key Accounts which lapped a period of planned inventory reduction.
  North Asia net sales were down 2%. In Korea, net sales declined 8%, as Windsor suffered from the continued contraction of the traditional on-trade, and increased competition in lower alcohol by volume local whisky segments. This is partially offset by net sales growth of 44% for W ICE by Windsor, a low alcohol by volume variant, and in Guinness as the international beer category grows. In Japan, net sales were up 11% largely driven by scotch net sales growing 29%, capitalising on the growth of brown spirits.
  Travel Retail Asia and Middle East net sales declined 18%, with lower spend by travellers and currency volatility having impacted performance. Geopolitical developments continue to impact the domestic and travel retail business in the Middle East.
  Marketing reduced 6% with efficiencies reported across the region, a decline in Korea in line with the contracting scotch category and delayed activities in Thailand due to the mourning period. These reductions were partially offset by an increased spend on Chinese white spirits in Greater China to further strengthen brand equity and drive sustainable growth.

 

    

    

    

    

    

    

 

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Category and brand review

 

LOGO Net sales by category Volume by category Marketing spend by category L6,421m 129.4EUm L908m Scotch Vodka North American whisk(e)y Rum Liqueurs Gin Tequila Ready to drink Beer IMFL whisky Other

Net sales by category and region

 

North America    Europe, Russia and Turkey    Africa
34% of total Diago Spirits Beer Ready to Drink Other LOGO    24% of total Diago Spirits Beer Ready to Drink Other LOGO    12% of total Diago Spirits Beer Ready to Drink Other LOGO

 

Latin America and Caribbean    Asia Pacific
10% of total Diago Spirits Beer Ready to Drink Other LOGO    20% of total Diago Spirits Beer Ready to Drink Other LOGO

 

    

    

    

    

    

    

 

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Key categories:

   Organic
volume
         movement(iii)
%
    Organic
net sales
        movement
%
    Reported
net sales
        movement
%
 

Spirits(i)

     2        6        20   

Scotch

     4        6        21   

Vodka(ii)

     (2     (2     15   

North American whisk(e)y

     11        15        37   

Rum(ii)

     (4     2        13   

Indian-Made Foreign Liquor (IMFL) whisky

     6        11        14   

Liqueurs

     3        2        12   

Gin(ii)

     4        7        21   

Tequila

     22        18        36   

Beer

     1               7   

Ready to drink

     (5     (1     21   

 

 

(i) Spirits brands excluding ready to drink.
(ii) Vodka, rum, gin including IMFL brands.
(iii) Organic equals reported volume movement except for Spirits 0%, Rum (7)%, IMFL whisky 4%, Liqueurs 0%, Beer (2)% and Ready to drink 2% which were impacted by disposals and the move from an owned to a franchise model in India.

 

Global giants, local stars and reserve(i):

   Organic
volume
         movement(ii)
%
    Organic
net sales
        movement
%
    Reported
net sales
        movement
%
 

Global giants

      

Johnnie Walker

     4        6        20   

Smirnoff

     (2     (2     13   

Baileys

     5        3        17   

Captain Morgan

     4        2        20   

Tanqueray

     12        9        28   

Guinness

     (3            10   

Local stars

      

Crown Royal

     15        17        40   

Yenì Raki

     (4     5        16   

Buchanan’s

     28        24        40   

JεB

     6        5        20   

Windsor

     (14     (15     4   

Old Parr

     7        14        34   

Bundaberg

     (3     1        26   

Black and White

     21        9        27   

Ypióca

            (3     32   

McDowell’s

     1        4        1   

Reserve

      

Scotch malts

     4        3        20   

Cîroc

     7        6        25   

Ketel One vodka

     (3     (8     10   

Don Julio

     22        17        35   

Bulleit

     27        29        54   

 

 

(i) Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement except for McDowell’s (3)% which was impacted by the move from an owned to a franchise model in India.

 

    

    

    

    

    

    

 

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Unless otherwise stated percentage movements refer to organic movements in the following analysis.

 

  Global Giants represent 42% of Diageo net sales and grew 3% with stronger growth of the reserve variants up 9%.
    Johnnie Walker net sales were up 6% with growth in all regions. Europe and Latin America and Caribbean were the largest contributors with 12% and 8% growth respectively, and net sales in the United States grew 8%. In Asia Pacific, the largest market for the brand, net sales grew 1% with growth of 19% in China and 17% in Australia and a decline in travel retail. Reserve variants grew 9% driven by Johnnie Walker Gold Label Reserve and Johnnie Walker Green Label.
    Smirnoff net sales declined 2%. In US Spirits depletions performance improved but net sales were down 5% following price adjustments to improve competitiveness and some negative mix. In Great Britain net sales declined as changes to the commercial footprint led efficiencies including inventory reduction. In Africa net sales grew 33% driven by the strong performance of innovations like Smirnoff 1818 in South Africa.
    Baileys net sales grew 3%, driven by 10% growth in its biggest market, Europe, following an exceptional on-trade execution and positive results of the ‘Don’t mind if I Baileys’ advertising campaign. In US Spirits net sales declined 7%.
    Captain Morgan net sales grew 2% due to a strong performance in Europe driven by the base variant Original Spiced growing double digit. In US Spirits net sales declined 1% with depletions growing faster than shipments as we continued to focus on inventory management to drive working capital efficiencies internally and through our distribution channels.
    Tanqueray net sales grew 9% with Europe and Latin America and Caribbean largely driving the growth and other regions delivering good performance.
    Guinness net sales were broadly flat. A decline in Africa with the exception of Africa Regional Markets which grew net sales up 5%, was partially offset by growth in Ireland driven by the success of Hop House 13 Lager, an innovation of the ‘Brewers Project’. In Latin America and Caribbean net sales were up high teens.
  Local stars represent 21% of net sales and grew 12%, due to Crown Royal in North America growing 17% and Buchanan’s up 24%, largely in Latin America and Caribbean. Solid growth in Yenì Raki in Turkey and McDowell’s more than offset the declines in Windsor in Korea.
  Reserve brands represent 16% of net sales and grew 9%. There was double digit growth in Chinese white spirits and strong performance in Don Julio with double digit sales growth in United States and Mexico. Scotch reserve brands grew 6% with Johnnie Walker driving the growth. Bulleit continued its strong growth with net sales up 29%. Tanqueray No. TEN grew 23%.

Other key highlights

 

  Scotch represents 27% of Diageo’s net sales and was up 6% in the half with growth in North America, Europe, Africa and Latin America and Caribbean driven by Johnnie Walker and Buchanan’s. Net sales declined in Asia Pacific with weakness in travel retail, Thailand and Korea. Standard and value segments had net sales growth of 6% from brands such as Johnnie Walker Red Label up 7%. Net sales of the premium and super premium segments grew 6% from brand such as Buchanan’s, up 24%. Windsor net sales declined double digit in Korea due to the decline of the scotch category. Scotch reserve brands grew net sales 6%.
  Vodka represents 12% of Diageo’s net sales and declined 2%, driven by soft performance in all the regions with the exception of Africa where net sales grew 33%. Net sales decline was driven by Smirnoff and Ketel One vodka, partially offset by Cîroc’s launch of innovations in the United States.
  North American whisk(e)y represents 9% of Diageo’s net sales and grew 15%. Performance continued to be driven by strong growth and share gains in Crown Royal and Bulleit in the United States.
  Rum represents 7% of Diageo’s net sales and grew 2%. In Europe, Africa and Latin America and the Caribbean net sales grew double digit. In India net sales declined 7% driven by McDowell’s No.1 while Captain Morgan drove the decline in North America.
  IMFL whisky represents 5% of Diageo’s net sales and grew 11%. The relaunches of two of the biggest brands McDowell’s No. 1 and Signature have contributed to this growth with both brands growing double digit.
  Liqueurs represents 6% of Diageo’s net sales and grew 2%. Growth of 8% in Europe, the largest liqueur market, was partially offset by net sales decline in the United States. In Latin American and Caribbean and Asia Pacific net sales were up.
  Gin represents 3% of Diageo’s net sales and grew 7%. Strong double digit net sales growth in Europe, East Africa and South Africa fuelled growth in the category. Tanqueray was the largest contributor growing 9%, followed by Gordon’s and Gilbey’s.
  Tequila represents 2% of Diageo’s net sales and grew 18%. The performance was driven by continued double digit growth of Don Julio in its biggest market, the United States. In Mexico the brand grew nearly three times faster than the category.

 

    

    

    

    

    

    

 

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  Beer represents 16% of Diageo’s net sales and performance was broadly flat. Net sales declined 1% in Africa as the decline in East Africa, the largest beer market, as a result of a significant excise duty increase, was partially offset by growth in Africa Regional Markets with net sales up 7%. Beer net sales in Europe were flat.
  Ready to drink represents 5% of Diageo’s net sales and declined 1%. This was largely driven by the decline in Bundaberg in Australia which was partially offset by a good performance in Gordon’s.

 

    

    

    

    

    

    

 

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LIQUIDITY AND CAPITAL RESOURCES

The primary source of the group’s liquidity has been cash generated from operations. These funds have generally been used to pay interest, taxes and dividends, and to fund capital expenditure and acquisitions.

Analysis of cash flow, movement in net borrowings and equity

For an analysis of movement in net borrowings, movement in equity and post-employment deficit please refer to pages 21-22. For an analysis of free cash flow please refer to page 16.

Analysis of borrowings

The group policy with regard to the expected maturity profile of borrowings of group finance companies is to limit the proportion of such borrowings maturing within 12 months to 50% of gross borrowings less money market demand deposits, and the level of commercial paper to 30% of gross borrowings less money market demand deposits. In addition, it is group policy to maintain backstop facility terms from relationship banks to support commercial paper obligations.

The group’s net borrowings and gross borrowings in the tables below are measured at amortised cost with the exception of borrowings designated in fair value hedge relationships, interest rate hedging instruments and foreign currency swaps and forwards. For borrowings designated in fair value hedge relationships, Diageo recognises a fair value adjustment for the risk being hedged in the balance sheet, whereas interest rate hedging instruments and foreign currency swaps and forwards are measured at fair value. Net borrowings, reported on this basis, comprise the following:

 

             31 December
2016
£ million
 

Overdrafts

     (283

Other borrowings due within one year

     (2,460
  

 

 

 

Borrowings due within one year

     (2,743

Borrowings due between one and three years

     (1,989

Borrowings due between three and five years

     (578

Borrowings due after five years

     (4,935

Fair value of foreign currency forwards and swaps

     301   

Fair value of interest rate hedging instruments

     (8

Finance lease obligations

     (238
  

 

 

 

Gross borrowings

     (10,190

Offset by:

  

Cash and cash equivalents

     1,254   
  

 

 

 

Net borrowings

     (8,936
  

 

 

 

The percentage of the group’s gross borrowings and cash and cash equivalents at 31 December 2016 denominated in the following currencies were as follows:

 

                                                                                                                                               
     Total
£ million
    US
dollar
%
     Sterling(iii)
%
     Euro
%
     Indian
rupee
%
     Turkish
lira(iii)
%
     Chinese
yuan
%
     South
African
rand
%
     Other(i)
%
 

Gross borrowings(ii)

     (10,190     25         49         20         5                                 1   

Cash and cash equivalents

     1,254        49         2         7         1         14         7         4         16   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

(i) No currency included within the other category exceeds 10% of the total cash and cash equivalents balance.
(ii) Including foreign exchange forwards and swaps.
(iii) As at 31 December 2016 includes £26 million (Sterling) and £169 million (Turkish lira) cash and cash equivalents in cash-pooling arrangements.

 

    

    

    

    

    

    

 

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Based on average monthly net borrowings and net interest charge, the effective interest rate for the six months ended 31 December 2016 was 3.5%. For this calculation, net interest charge excludes fair value adjustments to derivative financial instruments and borrowings and average monthly net borrowings include the impact of interest rate swaps that are no longer in a hedge relationship but exclude the market value adjustment for cross currency interest rate swaps.

In the six months ended 31 December 2016, the group repaid bonds of $600 million (£461 million). In the six months ended 31 December 2015, the group repaid bonds of $750 million (£489 million).

The principal components of the £301 million increase in net borrowings from 30 June 2016 to 31 December 2016 were the £920 million equity dividends paid and adverse exchange movements of £271 million partially offset by £1,084 million of free cash flow.

The group issues short term commercial paper regularly in order to finance its day-to-day operations.

The group had available undrawn committed bank facilities as follows:

 

               31 December
2016
£ million
 

Expiring within one year

       

Expiring between one and two years

     508   

Expiring after two years

     2,240   
  

 

 

 
     2,748   
  

 

 

 

These facilities can be used for general corporate purposes and, together with cash and cash equivalents, support the group’s commercial paper programmes.

There are no financial covenants on the group’s material short and long term borrowings. However, certain of these borrowings contain cross default provisions, covenants on pari passu ranking, negative pledges and restrictions on certain sale and leaseback transactions.

The committed bank facilities are subject to a single financial covenant, being minimum interest cover ratio of two times (defined as the ratio of operating profit before exceptional items, aggregated with share of after tax results of associates and joint ventures, to net interest). They are also subject to pari passu ranking and negative pledge covenants.

Any non-compliance with covenants underlying Diageo’s financing arrangements could, if not waived, constitute an event of default with respect to any such arrangements, and any non-compliance with covenants may, in particular circumstances, lead to an acceleration of maturity on certain borrowings and the inability to access committed facilities. Diageo was in full compliance with its financial and other covenants throughout each of the periods presented.

Capital management

The group’s management is committed to enhancing shareholder value in the long term, both by investing in the businesses and brands so as to deliver continued improvement in the return from those investments and by managing the capital structure. Diageo manages its capital structure to achieve capital efficiency, provide flexibility to invest through the economic cycle and give efficient access to debt markets at attractive cost levels. This is achieved by targeting a net borrowing to adjusted EBITDA leverage of 2.5 — 3.0 times, this range for Diageo being currently broadly consistent with an A band credit rating. Diageo has and would in the future consider operating outside of this range in order to effect strategic initiatives within its stated goals, which could have an impact on its rating. It is Diageo’s current policy that in the event that the financing of an acquisition negatively impacts Diageo’s leverage, it will seek over time to return to the range of 2.5 — 3.0 times. The group regularly assesses its debt and equity capital levels against its stated policy for capital structure. For this calculation net borrowings is adjusted by the pension deficit whilst adjusted EBITDA equals operating profit less exceptional operating items and depreciation, amortisation and impairment and includes share of after tax results of associates and joint ventures.

 

    

    

    

    

    

    

 

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Capital repayments

Authorisation was given by shareholders on 21 September 2016 to purchase a maximum of 251,781,000 shares at a minimum price of 28 101/108 pence and a maximum price of the higher of (a) 105% of the average of the middle market quotations for an ordinary share for the five preceding business days and (b) the higher of the price of the last independent trade and the highest current independent bid on the London Stock Exchange at the time the purchase is carried out. The programme expires at the conclusion of the next Annual General Meeting or on 20 December 2017, if earlier.

OFF-BALANCE SHEET ARRANGEMENTS

Neither Diageo plc nor any member of the Diageo group has any off-balance sheet financing arrangements that currently have or are reasonably likely to have a material future effect on the group’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditure or capital resources.

DEFINITIONS AND RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES

Diageo’s strategic planning process is based on the following non-GAAP measures. They are chosen for planning and reporting, and some of them are used for incentive purposes. The group’s management believes these measures provide valuable additional information for users of the financial statements in understanding the group’s performance. These non-GAAP measures should be viewed as complementary to, and not replacements for, the comparable GAAP measures and reported movements therein.

It is not possible to reconcile the forecast tax rate before exceptional items and forecast organic operating margin improvement to the most comparable GAAP measures as it is not possible to predict, with reasonable certainty, the future impact of changes in exchange rates, acquisitions and disposals and potential exceptional items.

Volume

Volume is a non-GAAP measure that is measured on an equivalent units basis to nine-litre cases of spirits. An equivalent unit represents one nine-litre case of spirits, which is approximately 272 servings. A serving comprises 33ml of spirits, 165ml of wine, or 330ml of ready to drink or beer. Therefore, to convert volume of products other than spirits to equivalent units, the following guide has been used: beer in hectolitres, divide by 0.9; wine in nine-litre cases, divide by five; ready to drink in nine-litre cases, divide by 10; and certain pre-mixed products that are classified as ready to drink in nine-litre cases, divide by five.

Organic movements

In the discussion of the performance of the business, ‘organic’ information is presented using pounds sterling amounts on a constant currency basis excluding the impact of exceptional items and acquisitions and disposals. Organic measures enable users to focus on the performance of the business which is common to both periods and which represents those measures that local managers are most directly able to influence.

Calculation of organic movements

The organic movement percentage is the amount in the row titled ‘Organic movement’ in the tables below, expressed as a percentage of the amount in the row titled ‘2015 adjusted’. Organic operating margin is calculated by dividing operating profit before exceptional items by net sales after excluding the impact of exchange rate movements and acquisitions and disposals.

(a) Exchange rates

‘Exchange’ in the organic movement calculation reflects the adjustment to recalculate the prior period results as if they had been generated at the current period’s exchange rates.

Exchange impacts in respect of the external hedging of intergroup sales of products and the intergroup recharging of third party services are allocated to the geographical segment to which they relate. Residual exchange impacts are reported in Corporate.

 

    

    

    

    

    

    

 

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(b) Acquisitions and disposals

For acquisitions in the current period, the post acquisition results are excluded from the organic movement calculations. For acquisitions in the prior period, post acquisition results are included in full in the prior period but are included in the organic movement calculation from the anniversary of the acquisition date in the current period. The acquisition row also eliminates the impact of transaction costs that have been charged to operating profit in the current or prior period in respect of acquisitions that, in management’s judgement, are expected to complete.

Where a business, brand, brand distribution right or agency agreement was disposed of, or terminated, in the period up to the date of the external results announcement, the group, in the organic movement calculations, excludes the results for that business from the current and prior period. In the calculation of operating profit, the overheads included in disposals are only those directly attributable to the businesses disposed of, and do not result from subjective judgements of management. In addition, disposals include the elimination of the results (for volume, sales and net sales only) of operations in India where United Spirits Limited (USL) previously fully consolidated the results but which are now operated on a royalty or franchise model where USL now only receives royalties for sales made by that operation.

(c) Exceptional items

Exceptional items are those which, in management’s judgement, need to be disclosed by virtue of their size or nature. Such items are included within the income statement caption to which they relate, and are separately disclosed in the notes to the consolidated financial statements, and are excluded from the organic movement calculations.

Exceptional operating items are those that are considered to be material and are part of the operating activities of the group such as global restructuring plans, impairments of fixed assets, duty settlements, property disposals and changes in post employment plans.

Gains and losses on the sale of businesses, brands or distribution rights, step up gains and losses that arise when an investment becomes an associate or an associate becomes a subsidiary and other material, unusual non-recurring items, that are not in respect of the production, marketing and distribution of premium drinks, are disclosed as non-operating exceptional items below operating profit in the consolidated income statement.

It is believed that separate disclosure of exceptional items and the classification between operating and non-operating further helps investors to understand the performance of the group.

Organic movement calculations for the six months ended 31 December 2016 were as follows:

 

     North
      America
million
    Europe,
    Russia and
Turkey
million
    Africa
        million
    Latin America
    and Caribbean
million
    Asia
Pacific
        million
        Corporate
million
     Total
        million
 

Volume (equivalent units)

               

2015 reported

     24.9        24.1        16.3        11.7        53.3                130.3   

Reclassification(ii)

            0.3        (0.1            (0.2               

Disposals(iii)

     (0.4     (0.9     (0.1     (0.5     (4.0             (5.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

2015 adjusted

     24.5        23.5        16.1        11.2        49.1                124.4   

Acquisitions and disposals(iii)

                   0.2        0.4        2.2                2.8   

Organic movement

     0.3        0.6        0.5               0.8                2.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

2016 reported

     24.8        24.1        16.8        11.6        52.1                129.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Organic movement %

     1        3        3               2                2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

    

    

    

    

    

    

 

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Table of Contents
     North
        America
£ million
    Europe,
    Russia and
Turkey
£ million
    Africa
        £ million
    Latin America
    and Caribbean
£ million
    Asia
Pacific
        £ million
        Corporate
£ million
     Total
        £ million
 

Sales

               

2015 reported

     2,113        2,448        955        671        2,063        17         8,267   

Exchange(i)

     413        241        94        97        378        4         1,227   

Reclassification(ii)

            23        (8            (15               

Disposals(iii)

     (131     (103     (8     (44     (53             (339
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

2015 adjusted

     2,395        2,609        1,033        724        2,373        21         9,155   

Acquisitions and disposals(iii)

            2        31        5        30                68   

Organic movement

     68        108        47        60        106        3         392   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

2016 reported

     2,463        2,719        1,111        789        2,509        24         9,615   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Organic movement %

     3        4        5        8        4        14         4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

    

    

    

    

    

    

 

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Table of Contents
     North
        America

million
    Europe,
    Russia and
Turkey
million
    Africa
        million
    Latin America
    and Caribbean
million
    Asia
Pacific
        million
        Corporate
million
    Total
        million
 

Net sales

              

2015 reported

     1,867        1,361        716        522        1,123        17        5,606   

Exchange(i)

     364        149        54        77        205        4        853   

Reclassification(ii)

            23        (8            (87            (72

Disposals(iii)

     (126     (78     (6     (36     (32            (278
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2015 adjusted

     2,105        1,455        756        563        1,209        21        6,109   

Acquisitions and
disposals(iii)

            3        20        5        14               42   

Organic movement

     67        76        32        60        32        3        270   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2016 reported

     2,172        1,534        808        628        1,255        24        6,421   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Organic movement %

     3        5        4        11        3        14        4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Marketing

              

2015 reported

     275        218        74        96        157        2        822   

Exchange(i)

     50        13        4        13        31        2        113   

Reclassification(ii)

            4        (1            (3              

Disposals(iii)

     (9     (2            (4                   (15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2015 adjusted

     316        233        77        105        185        4        920   

Acquisitions and
disposals(iii)

                   5                             5   

Organic movement

     2        (4     2        (6     (11            (17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2016 reported

     318        229        84        99        174        4        908   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Organic movement %

     1        (2     3        (6     (6            (2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit before exceptional items

              

2015 reported

     809        450        138        154        234        (68     1,717   

Exchange(i)

     163        53        10        34        47        (4     303   

Reclassification(ii)

            10        (5            (5              

Acquisitions and disposals(iii)

     (12     (10     (3     (7     (1     1        (32
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2015 adjusted

     960        503        140        181        275        (71     1,988   

Acquisitions and
disposals(iii)

                   (11     1                      (10

Organic movement

     59        32        3        23        (16     (14     87   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2016 reported

     1,019        535        132        205        259        (85     2,065   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Organic movement %

     6        6        2        13        (6     (20     4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Organic operating
margin %

              

2016

     46.9     34.9     18.1     32.7     20.9     n/a        32.53

2015

     45.6     34.6     18.5     32.1     22.7     n/a        32.54

Margin improvement/(decline) (bps)

     131        37        (37     60        (188     n/a        (1

 

(1) For the reconciliation of sales to net sales and operating profit before exceptional items to operating profit see page 18 and page F-9.
(2) Percentages and margin improvement/(decline) are calculated on rounded figures.

 

    

    

    

    

    

    

 

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Notes: Information in respect of the organic movement calculations

 

(i) The exchange adjustments for sales, net sales, marketing and operating profit are principally in respect of the US dollar, the euro, the Kenyan schilling and the Indian rupee, partially offset by the Nigerian naira.
(ii) Reclassifications comprise the results of Lebanon, other Middle East countries and North African countries which were formerly reported in the Asia Pacific and Africa regions respectively and are now included in the Europe, Russia and Turkey region.

In addition to net sales, following a review of the third party production arrangements in India at 30 June 2016 it was determined that it would be more appropriate to ensure consistent reporting by reclassifying the excise duties payable by the third party production companies in India as excise duties. As a result there was a reclassification of the reported figures for the six months ended 31 December 2015 which resulted in a reduction in net sales of £72 million with a corresponding decrease in cost of sales. There was no impact on gross or operating profit. The comparative information has not been restated as the amounts involved are not material.

(iii) In the six months ended 31 December 2016 the acquisitions and disposals that affected volume, sales, net sales, marketing and operating profit were as follows:

 

    Volume
    equ. units million
    Sales
          £ million
    Net sales
          £ million
    Marketing
          £ million
    Operating
profit

          £ million
 

Six months ended 31 December 2015

         

Acquisitions

         

Transaction costs

                                1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Disposals

         

North America Wines

    (0.3     (112     (110     (8     (8

Percy Fox

    (0.6     (70     (54     (1     (6

Grand Marnier

    (0.2     (19     (15            (2

Bouvet

           (8     (8            (1

Argentina

    (0.3     (20     (18     (2     (4

South Africa

    (0.1     (7     (5            (2

Jamaica and Red Stripe

    (0.4     (53     (41     (4     (8

Bushmills

           (3     (2            (1

USL franchise

    (4.0     (45     (23              

CGI (Kenya)

           (2     (2            (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (5.9     (339     (278     (15     (33
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisitions and disposals

    (5.9     (339     (278     (15     (32
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six months ended 31 December 2016

         

Acquisitions

         

South Africa - ready to drink and beer

    0.2        31        20        5        (11

Argentina

    0.2        4        4               1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    0.4        35        24        5        (10
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Disposals

         

Argentina

    0.2        1        1                 

USL franchise

    2.2        29        14                 

[yellow tail]

           3        3                 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    2.4        33        18                 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisitions and disposals

    2.8        68        42        5        (10
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    

    

    

    

    

    

 

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Earnings per share before exceptional items

Earnings per share before exceptional items is calculated by dividing profit attributable to equity shareholders of the parent company before exceptional items by the weighted average number of shares in issue.

Earnings per share before exceptional items for the six months ended 31 December 2016 and 31 December 2015 are set out in the table below.

 

     2016
            £ million
    2015
            £ million
 

Profit attributable to equity shareholders of the parent company

     1,514        1,406   

Exceptional operating items attributable to equity shareholders of the parent company

            104   

Non-operating items attributable to equity shareholders of the parent company

     (20     (203

Tax in respect of exceptional operating and non-operating items attributable to equity shareholders of the parent company

     7        (22

Discontinued operations

     55          
  

 

 

   

 

 

 
     1,556        1,285   
  

 

 

   

 

 

 
     million     million  

Weighted average number of shares

    

Shares in issue excluding own shares

     2,511        2,507   

Dilutive potential ordinary shares

     12        11   
  

 

 

   

 

 

 
     2,523        2,518   
  

 

 

   

 

 

 
     pence     pence  

Basic earnings per share before exceptional items

     62.0        51.3   
  

 

 

   

 

 

 

Diluted earnings per share before exceptional items

     61.7        51.0   
  

 

 

   

 

 

 

Free cash flow

Free cash flow comprises the net cash flow from operating activities aggregated with the net movements in loans receivable and other investments and with the net purchase of property, plant and equipment and computer software that are included in net cash flow from investing activities.

The remaining components of net cash flow from investing activities that do not form part of free cash flow, as defined by the group’s management, are in respect of the acquisition and sale of businesses.

The group’s management regards the purchase and disposal of property, plant and equipment and computer software as ultimately non-discretionary since ongoing investment in plant, machinery and technology is required to support the day-to-day operations, whereas acquisitions and sales of businesses are discretionary.

Where appropriate, separate explanations are given for the impacts of acquisitions and sale of businesses, dividends paid and the purchase of own shares, each of which arises from decisions that are independent from the running of the ongoing underlying business.

 

    

    

    

    

    

    

 

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Free cash flow reconciliations for the six months ended 31 December 2016 and 31 December 2015 are set out in the table below:

 

     2016
            £ million
    2015
        £ million
 

Net cash from operating activities

     1,267        1,037   

Disposal of property, plant and equipment and computer software

     13        8   

Purchase of property, plant and equipment and computer software

     (197     (204

Movements in loans and other investments

     1        (2
  

 

 

   

 

 

 

Free cash flow

     1,084        839   
  

 

 

   

 

 

 

Return on average total invested capital

Return on average total invested capital is used by management to assess the return obtained from the group’s asset base and is calculated to aid evaluation of the performance of the business.

The profit used in assessing the return on average total invested capital reflects operating profit before exceptional items attributable to the equity shareholders of the parent company plus share of after tax results of associates and joint ventures after applying the tax rate before exceptional items for the period. Average total invested capital is calculated using the average derived from the consolidated balance sheets at the beginning and end of the period. Average capital employed comprises average net assets attributable to equity shareholders of the parent company for the period, excluding post employment benefit net liabilities (net of deferred tax) and average net borrowings. This average capital employed is then aggregated with the average restructuring and integration costs net of tax, and goodwill written off to reserves at 1 July 2004, the date of transition to IFRS, to obtain the average total invested capital.

Calculations for the return on average total invested capital for the six months ended 31 December 2016 and 31 December 2015 are set out in the table below:

 

     2016
            £ million
    2015
        £ million
 

Operating profit

     2,065        1,613   

Exceptional operating items

            104   

Profit before exceptional operating items attributable to non-controlling interests

     (69     (74

Share of after tax results of associates and joint ventures

     171        136   

Tax at the tax rate before exceptional items of 20.9% (2015 — 19.0%)

     (453     (338
  

 

 

   

 

 

 
     1,714        1,441   
  

 

 

   

 

 

 

Average net assets (excluding net post employment liabilities)

     11,540        9,736   

Average non-controlling interest

     (1,715     (1,512

Average net borrowings

     8,785        9,378   

Average integration and restructuring costs (net of tax)

     1,639        1,639   

Goodwill at 1 July 2004

     1,562        1,562   
  

 

 

   

 

 

 

Average total invested capital

     21,811        20,803   
  

 

 

   

 

 

 

Return on average total invested capital

     15.7%        13.9%   
  

 

 

   

 

 

 

 

    

    

    

    

    

    

 

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Tax rate before exceptional items

Tax rate before exceptional items is calculated by dividing the total tax charge on continuing operations before tax charges and credits, classified as or in respect of exceptional items, by profit before taxation adjusted to exclude the impact of exceptional operating and non-operating items, expressed as a percentage. The measure is used by management to assess the rate of tax applied to the group’s continuing operations before tax on exceptional items.

The tax rates from operations before exceptional and after exceptional items for the six months ended 31 December 2016 and 31 December 2015 are set out in the table below:

 

     2016
            £ million
     2015
        £ million
 

Tax before exceptional items (a)

     429         318   

Tax in respect of exceptional items

     7         (22
  

 

 

    

 

 

 

Taxation on profit from continuing operations (b)

     436         296   
  

 

 

    

 

 

 

Profit from continuing operations before taxation and exceptional items (c)

     2,054         1,677   

Non-operating items

     20         211   

Exceptional operating items

             (104
  

 

 

    

 

 

 

Profit before taxation (d)

     2,074         1,784   
  

 

 

    

 

 

 

Tax rate before exceptional items (a/c)

     20.9%         19.0%   

Tax rate from continuing operation after exceptional items (b/d)

     21.0%         16.6%   

Other definitions

Volume share is a brand’s retail volume expressed as a percentage of the retail volume of all brands in its segment. Value share is a brand’s retail sales value expressed as a percentage of the retail sales value of all brands in its segment. Unless otherwise stated, share refers to value share.

Net sales are sales less excise duties. Diageo incurs excise duties throughout the world. In the majority of countries excise duties are effectively a production tax which becomes payable when the product is removed from bonded premises and is not directly related to the value of sales. It is generally not included as a separate item on external invoices; increases in excise duty are not always passed on to the customer and where a customer fails to pay for product received the group cannot reclaim the excise duty. The group therefore recognises excise duty as a cost to the group.

Price/mix is the number of percentage points by which the organic movement in net sales differs to the organic movement in volume. The difference arises because of changes in the composition of sales between higher and lower priced variants/markets or as price changes are implemented.

Shipments comprise the volume of products made to Diageo’s immediate customers. Depletions are the estimated volume of the first onward sales made by our direct customers. Both shipments and depletions are measured on an equivalent units basis.

References to emerging markets include Russia, Eastern Europe, Turkey, Africa, Latin America and Caribbean, and Asia Pacific (excluding Australia, Korea and Japan).

References to reserve brands include, but not limited to, Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie Walker Gold Label 18 year old, Johnnie Walker Gold Label Reserve, Johnnie Walker Platinum Label 18 year old, John Walker & Sons Collection, Johnnie Walker The Gold Route, Johnnie Walker The Royal Route and other Johnnie Walker super premium brands; The Singleton, Cardhu, Talisker, Lagavulin and other malt brands; Buchanan’s Special Reserve, Buchanan’s Red Seal; Bulleit Bourbon, Bulleit Rye; Tanqueray No. TEN, Tanqueray Malacca Gin; Cîroc, Ketel One vodka; Don Julio, Zacapa, Bundaberg SDlx, Shui Jing Fang, Jinzu gin, Haig Club whisky, Orphan Barrel whiskey and DeLeón Tequila.

 

    

    

    

    

    

    

 

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References to global giants include the following brand families: Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray and Guinness. Local stars spirits include Buchanan’s, Bundaberg, Crown Royal, JeB, McDowell’s, Old Parr, Yenì Raki, Black and White, Shui Jing Fang, Windsor and Ypióca. Global giants and local stars exclude ready to drink.

References to ready to drink also include ready to serve products, such as pre-mix cans in some markets, and progressive adult beverages in the United States and certain markets supplied by the United States.

References to beer include some non-alcoholic products such as Malta Guinness.

References to the group include Diageo plc and its consolidated subsidiaries.

 

    

    

    

    

    

    

 

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NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS

A number of IFRS standards and interpretations have been issued by the IASB or IFRIC. Those that are of relevance to the group are disclosed in note 1 to the unaudited condensed consolidated financial information.

 

    

    

    

    

    

    

 

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INDEX TO THE UNAUDITED CONDENSED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 31 DECEMBER 2016 AND 31 DECEMBER 2015

 

             Page  

Unaudited condensed consolidated income statement

     F-2   

Unaudited condensed consolidated statement of comprehensive income

     F-3   

Unaudited condensed consolidated balance sheet

     F-4   

Unaudited condensed consolidated statement of changes in equity

     F-5   

Unaudited condensed consolidated statement of cash flows

     F-6   

Notes to the unaudited condensed consolidated financial information

     F-7   

The unaudited condensed consolidated financial information was approved by the board of directors on 25 January 2017.

 

    

    

    

    

    

    

 

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UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT

 

                                                                                      
     Notes      Six months ended
31 December 2016
£ million
    Six months ended
31 December 2015
£ million
 

Sales

     2         9,615        8,267   

Excise duties

        (3,194     (2,661
     

 

 

   

 

 

 

Net sales

     2         6,421        5,606   

Cost of sales

        (2,465     (2,292
     

 

 

   

 

 

 

Gross profit

        3,956        3,314   

Marketing

        (908     (822

Other operating expenses

        (983     (879
     

 

 

   

 

 

 

Operating profit

     2         2,065        1,613   

Non-operating items

     3         20        211   

Finance income

     4         153        110   

Finance charges

     4         (335     (286

Share of after tax results of associates and joint ventures

        171        136   
     

 

 

   

 

 

 

Profit before taxation

        2,074        1,784   

Taxation

     5         (436     (296
     

 

 

   

 

 

 

Profit from continuing operations

        1,638        1,488   

Discontinued operations

     3         (55       
     

 

 

   

 

 

 

Profit for the period

        1,583        1,488   
     

 

 

   

 

 

 

Attributable to:

       

Equity shareholders of the parent company - continuing operations

        1,569        1,406   

Equity shareholders of the parent company - discontinued operations

        (55       

Non-controlling interests

        69        82   
     

 

 

   

 

 

 
        1,583        1,488   
     

 

 

   

 

 

 
            million     million  

Weighted average number of shares

       

Shares in issue excluding own shares

        2,511        2,507   

Dilutive potential ordinary shares

        12        11   
     

 

 

   

 

 

 
        2,523        2,518   
     

 

 

   

 

 

 
            pence     pence  

Basic earnings per share

       

Continuing operations

        62.5        56.1   

Discontinued operations

        (2.2       
     

 

 

   

 

 

 
        60.3        56.1   
     

 

 

   

 

 

 

Diluted earnings per share

       

Continuing operations

        62.2        55.8   

Discontinued operations

        (2.2       
     

 

 

   

 

 

 
        60.0        55.8   
     

 

 

   

 

 

 

 

    

    

    

    

    

    

 

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UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

     Six months ended
31 December 2016
       Six months ended
31 December 2015
 
     £ million        £ million  
Other comprehensive income        
Items that will not be recycled subsequently to the income statement        
Net remeasurement of post employment plans        
— group      298           (240
— associates and joint ventures      (5          
Tax on post employment plans      (59        55   
  

 

 

      

 

 

 
     234           (185
  

 

 

      

 

 

 
Items that may be recycled subsequently to the income statement        
Exchange differences on translation of foreign operations        
— group      470           118   
— associates and joint ventures      64           80   
non-controlling interests      104           63   
Net investment hedges      (334        (180
Exchange loss recycled to the income statement        
— on translation of foreign operations                43   
Tax on exchange differences      1           4   
Effective portion of changes in fair value of cash flow hedges        

— (losses)/gains taken to other comprehensive income - group

     (35        45   
— gains taken to other comprehensive income - associates and joint ventures                1   
— recycled to income statement      (34        (50
Tax on effective portion of changes in fair value of cash flow hedges      16           (5
Fair value movements on available-for-sale investments        
— gains taken to other comprehensive income - group                4   
— gains taken to other comprehensive income - non-controlling interests                4   
— recycled to income statement - group                (15
— recycled to income statement - non-controlling interests                (13
Tax on available-for-sale fair value movements                5   
Hyperinflation adjustment                (2
Tax on hyperinflation adjustment                1   
  

 

 

      

 

 

 
     252           103   
  

 

 

      

 

 

 
Other comprehensive profit/(loss), net of tax, for the period      486           (82
Profit for the period      1,583           1,488   
  

 

 

      

 

 

 
Total comprehensive income for the period      2,069           1,406   
  

 

 

      

 

 

 
Attributable to:        
Equity shareholders of the parent company      1,896           1,270   
Non-controlling interests      173           136   
  

 

 

      

 

 

 
Total comprehensive income for the period      2,069           1,406   
  

 

 

      

 

 

 

 

    

    

    

    

    

    

 

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

 

                                                                                                                      
            31 December 2016     30 June 2016     31 December 2015  
     Notes      £ million     £ million     £ million     £ million     £ million     £ million  

Non-current assets

               

Intangible assets

        12,911          12,370          11,333     

Property, plant and equipment

        3,992          3,881          3,624     

Biological assets

        10          10          9     

Investments in associates and joint ventures

        2,797          2,528          2,314     

Other investments

        31          31          29     

Other receivables

        55          46          49     

Other financial assets

     9         327          420          259     

Deferred tax assets

        296          298          167     

Post employment benefit assets

        84          55          224     
     

 

 

     

 

 

     

 

 

   
          20,503          19,639          18,008   

Current assets

               

Inventories

     6         4,741          4,579          4,387     

Trade and other receivables

        3,603          2,686          3,077     

Assets held for sale

        3          3          563     

Other financial assets

     9         126          495          221     

Cash and cash equivalents

     7         1,254          1,089          541     
     

 

 

     

 

 

     

 

 

   
          9,727          8,852          8,789   
       

 

 

     

 

 

     

 

 

 

Total assets

          30,230          28,491          26,797   
       

 

 

     

 

 

     

 

 

 

Current liabilities

               

Borrowings and bank overdrafts

     7         (2,743       (2,058       (1,935  

Other financial liabilities

     9         (274       (280       (111  

Trade and other payables

        (3,939       (3,372       (3,194  

Liabilities held for sale

                          (175  

Corporate tax payable

        (469       (340       (294  

Provisions

        (140       (137       (91  
     

 

 

     

 

 

     

 

 

   
          (7,565       (6,187       (5,800

Non-current liabilities

               

Borrowings

     7         (7,502       (8,071