UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
31 January 2019
 
Commission File Number:  001-10691
 
DIAGEO plc
(Translation of registrant’s name into English)
 
 
Lakeside Drive, Park Royal, London NW10 7HQ
(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   X                                                                  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):   
 
 
 
 
 
Interim results, six months ended 31 December 2018
31 January 2019
 
 
 
 
 
Delivering our strategy through strong consistent performance
 
 
 
   Reported net sales (£6.9 billion) was up 5.8% with organic growth partially offset by unfavourable exchange. Reported operating profit (£2.4 billion) was up 11.0%, driven by organic growth
 
     All regions contributed to broad based organic net sales growth, up 7.5%, with organic volume up 3.5%
 
     Organic operating profit grew 12.3%, ahead of top line growth, as cost inflation and higher marketing investment were more than offset by improved price/mix and efficiencies from our productivity programme
 
     Cash flow continued to be strong, with net cash from operating activities at £1.6 billion, up £356 million and free cash flow at £1.3 billion, up £317 million
 
    Basic eps of 80.9 pence was down by (1.6)%. Pre-exceptional eps was 77.0 pence, up 13.6%, driven by higher operating profit and lower finance charges, which more than offset an increased tax charge largely as a result of lapping the positive impact of US tax reform in the prior period
 
     The interim dividend increased 5% to 26.1 pence per share
 
See Explanatory Notes for explanation of the use of non-GAAP measures.
 
 
 
 
Ivan Menezes, Chief Executive, commenting on the results said:
 
 
 
 
"Diageo delivered broad-based volume and organic net sales growth across regions and categories. We continue to expand organic operating margins while increasing investment in our brands ahead of organic net sales growth.
 
These results are further evidence of the changes we have made in Diageo to put the consumer at the heart of our business, to embed productivity and to act with agility to enable us to win sustainably. 
 
At £1.3 billion, we delivered another period of strong free cash flow. As a result the board approved an incremental share buyback of £660 million, bringing the total programme up to £3.0 billion for the year ending 30 June 2019.
 
This half has benefitted from some one-time and phasing gains in both organic net sales and operating profit, and therefore we continue to expect to deliver mid-single digit organic net sales growth for the year and to expand operating margins in line with our previous guidance of 175 bps for the three years ending 30 June 2019.
 
As we deploy our strategy, we remain focused on building the long-term health of our brands and ensuring we grow our business in a consistent and sustainable way."
 
 
Key financial information
Six months ended 31 December 2018
 
Summary financial information
 
 
 
 
 
F19 H1
 
F18 H1
 
Organicgrowth%
 
Reported growth%
 
Volume
 
EUm
 
130.5
 
 
126.4
 
 
4
 
 
3
 
 
Net sales
 
£ million
 
6,908
 
 
6,530
 
 
7
 
 
6
 
 
Marketing
 
£ million
 
1,054
 
 
968
 
 
9
 
 
9
 
 
Operating profit before exceptional items
 
£ million
 
2,451
 
 
2,190
 
 
12
 
 
12
 
 
Exceptional operating items(i)
 
£ million
 
(21
 
)
 
-
 
 
 
 
Operating profit
 
£ million
 
2,430
 
 
2,190
 
 
 
11
 
 
Share of associate and joint venture profit after tax
 
£ million
 
179
 
 
168
 
 
 
7
 
 
Exceptional non-operating gain(i)
 
£ million
 
146
 
 
-
 
 
 
 
Net finance charges
 
£ million
 
(128
 
)
 
(154
 
)
 
 
 
Exceptional taxation (charge)/credit(i)
 
£ million
 
(30
 
)
 
360
 
 
 
 
Tax rate including exceptional items
 
%
 
21.3
 
 
3.5
 
 
 
509
 
 
Tax rate before exceptional items
 
%
 
21.2
 
 
19.8
 
 
 
7
 
 
Profit attributable to parent company's shareholders
 
£ million
 
1,976
 
 
2,058
 
 
 
(4
 
)
 
Basic earnings per share
 
pence
 
80.9
 
 
82.2
 
 
 
(2
 
)
 
Earnings per share before exceptional items
 
pence
 
77.0
 
 
67.8
 
 
 
14
 
 
Interim dividend
 
pence
 
26.1
 
 
24.9
 
 
 
5
 
 
 
(i)   For further details of exceptional items see Additional Financial Information (c) Exceptional items.
 
Outlook for exchange 
Using exchange rates £1 = $1.32; £1 = €1.16, the exchange rate movement for the year ending 30 June 2019 is estimated to adversely impact net sales by approximately £80 million and operating profit by approximately £10 million.
 
Outlook for tax 
The tax rate before exceptional items for the six months ended 31 December 2018 was 21.2% compared with 19.8% in the prior comparable period. Our current expectation is that the tax rate before exceptional items for the year ending 30 June 2019 will be in the range of 21% to 22%, which reflects changing business mix and the increased levels of uncertainty in the current tax environment for most multinationals. For further details on taxation see Additional Financial Information (d) Taxation.
 
Share buyback programme
On 26 July 2018 the Board approved a share buyback programme to return up to £2.0 billion to shareholders during the year ending 30 June 2019. On 20 December 2018 Diageo completed the sale of a portfolio of 19 brands to Sazerac. The net proceeds of approximately £340 million, after corporate tax and transaction costs, will be returned to shareholders through a share buyback programme, which brought the total programme to £2.34 billion.
 
On 30 January 2019 the board approved a further incremental share buyback programme of £660 million, bringing the total programme to up to £3.0 billion for the year ending 30 June 2019.
 
In the six months ended 31 December 2018, 46.5 million shares were repurchased for an aggregate consideration of £1.275 billion. 
 
Acquisitions and disposals 
The impact of acquisitions and disposals on the reported figures was primarily attributable to the disposal of a portfolio of 19 brands to Sazerac which was completed on 20 December 2018 and to the prior year acquisition of the Casamigos brand.
 
For further details on the impact of acquisitions and disposals see Explanatory Notes.)
 
Net sales (£ million)
 
 
Reported net sales were up 5.8% with organic growth partially offset by unfavourable exchange
 
 
Organic net sales grew 7.5% driven by volume up 3.5% and positive price/mix up 4.0%
 
(i
 
 
Net sales
 
£ million
 
F18 H1
 
6,530
 
 
Exchange(i)
 
(91
 
)
 
Acquisitions and disposals
 
(7
 
)
 
Volume
 
224
 
 
Price/mix
 
252
 
 
F19 H1
 
6,908
 
 
 
 
(i)   Exchange rate movements reflect the translation of prior year reported results at current year exchange rates.
 
Reported net sales grew 5.8%, driven by organic growth which was partially offset by unfavourable exchange and acquisitions and disposals.
 
Organic volume growth of 3.5% and 4.0% positive price/mix drove 7.5% organic net sales growth. All regions reported organic net sales growth. 
 
Operating profit (£ million)
 
 
Reported operating profit grew 11.0%
 
 
Organic operating profit grew 12.3%
 
 
 
Operating profit
 
£ million
 
F18 H1
 
2,190
 
 
Exceptional operating items
 
(21
 
)
 
Exchange
 
-
 
 
Acquisitions and disposals
 
(3
 
)
 
Organic movement
 
264
 
 
F19 H1
 
2,430
 
 
 
 
Reported operating profit was up 11.0% with organic growth partially offset by exceptional operating items and acquisitions and disposals. Organic operating profit grew ahead of net sales at 12.3%.
 
 
 
Operating margin (%)
 
 
Reported operating margin increased 164bps
 
 
Organic operating margin increased 152 bps
 
Operating margin
 
ppt
 
F18 H1
 
33.5
 
 
Exceptional operating items
 
(0.30
 
)
 
Exchange
 
0.47
 
 
Acquisitions and disposals
 
(0.05
 
)
 
Gross margin
 
0.50
 
 
Marketing
 
(0.26
 
)
 
Other operating expenses
 
1.28
 
 
F19 H1
 
35.2
 
 
 
 
 
Reported operating margin increased 164bps driven by organic operating margin improvement and the positive impact on operating margin due to exchange, as a result of the higher negative impact of exchange on net sales relative to operating profit.  Organic operating margin improved 152bps driven by improved price/mix and efficiencies from our productivity programme partially offset by higher marketing spend.
 
 
Basic earnings per share (pence)
 
 
Basic eps decreased 1.6% from 82.2 pence to 80.9 pence
 
 
Eps before exceptional items increased 13.6% from 67.8 pence to 77.0 pence
 
(i
 
Basic earnings per share
 
pence
 
F18 H1
 
82.2
 
 
Exceptional items after tax
 
(10.5
 
)
 
Exchange on operating profit
 
0.1
 
 
Acquisitions and disposals
 
(0.1
 
)
 
Organic operating profit growth(i)
 
10.4
 
 
Associates and joint ventures
 
0.4
 
 
Net finance charges
 
2.2
 
 
Tax
 
(4.0
 
)
 
Share buyback
 
1.1
 
 
Non-controlling interests
 
(0.9
 
)
 
F19 H1
 
80.9
 
 
 
 
(i)   Excluding exchange
 
Basic eps declined 1.3 pence largely due to lapping the benefit of an exceptional tax credit in the prior period following the tax reduction in the United States under the US Tax Cut and Jobs Act.
 
Eps before exceptional items increased 9.2 pence as organic operating profit growth and lower finance charges more than offset the higher tax charge.
 
 
 
Free cash flow (£ million)
 
 
Net cash from operating activities(i) was £1,604 million, an increase of £356 million compared to the same period last year. Free cash flow was £1,346 million, an increase of £317 million
 
Free cash flow
 
£ million
 
F18 H1
 
1,029
 
 
Exchange(ii)
 
-
 
 
Operating profit(iii)
 
283
 
 
Working capital(iv)
 
(126
 
)
 
Capex
 
(57
 
)
 
Tax
 
179
 
 
Interest
 
23
 
 
Other(v)
 
15
 
 
F19 H1
 
1,346
 
 
 
 
(i)     Net cash from operating activities excludes net capex, movements in loans and other investments (2018 - (£258) million; 2017 - (£219) million).  
(ii)    Exchange on operating profit before exceptional items. 
(iii)    Operating profit excludes exchange, depreciation and amortisation, post employment charges and non-cash items. 
(iv)   Working capital movement includes maturing inventory. 
(v)   Other items include post employment payments, dividends received from associates and joint ventures, and movements in loans and other investments.
 
 
Free cash flow continued to be strong at £1.3 billion largely driven by operating profit growth and lower tax payments  which benefitted from the lapping of the one-off payment made to the UK tax authorities in August 2017. This increase was partially offset by a higher year on year working capital outflow, including increased investment in maturing inventory, and increased capex.
 
The operating working capital position, excluding maturing inventory, on the balance sheet improved in the half compared to the same period last year, largely as a result of higher creditors.
 
Return on average invested capital (%)(i)
 
 
ROIC improved 135bps
 
 
Return on average invested capital
 
ppt
 
F18 H1
 
16.5
 
 
Exchange
 
0.19
 
 
Acquisitions and disposals
 
(0.16
 
)
 
Organic operating profit growth
 
2.38
 
 
Associates and joint ventures
 
(0.03
 
)
 
Tax
 
(0.68
 
)
 
Other
 
(0.35
 
)
 
F19 H1
 
17.8
 
 
 
 
 
(i)   ROIC calculation excludes exceptional items.
 
ROIC increased 135bps largely driven by organic operating profit growth which was partially offset by the impact from higher tax charges, acquisitions and disposals and associates and joint ventures.  
 
 
 
Reported growth by region
 
 
 
 
Volume
 
Net sales
 
Marketing
 
Operating profit(i)
 
 
%
 
EUm
 
%
 
£ million
 
%
 
£ million
 
%
 
£ million
 
North America
 
2
 
 
0.4
 
 
8
 
 
173
 
 
13
 
 
45
 
 
7
 
 
74
 
 
Europe and Turkey
 
2
 
 
0.5
 
 
2
 
 
34
 
 
6
 
 
14
 
 
3
 
 
15
 
 
Africa
 
1
 
 
0.2
 
 
6
 
 
47
 
 
10
 
 
8
 
 
28
 
 
33
 
 
Latin America and Caribbean
 
(1
 
)
 
(0.1
 
)
 
4
 
 
23
 
 
1
 
 
1
 
 
17
 
 
36
 
 
Asia Pacific
 
7
 
 
3.1
 
 
8
 
 
100
 
 
11
 
 
20
 
 
29
 
 
93
 
 
Corporate
 
-
 
 
-
 
 
4
 
 
1
 
 
(50
 
)
 
(2
 
)
 
11
 
 
10
 
 
Diageo
 
3
 
 
4.1
 
 
6
 
 
378
 
 
9
 
 
86
 
 
12
 
 
261
 
 
 
 
 
 
Organic growth by region
 
 
 
 
Volume
 
Net sales
 
Marketing
 
Operating profit(i)
 
 
%
 
EUm
 
%
 
£ million
 
%
 
£ million
 
%
 
£ million
 
North America
 
3
 
 
0.6
 
 
6
 
 
130
 
 
10
 
 
36
 
 
4
 
 
36
 
 
Europe and Turkey
 
1
 
 
0.3
 
 
5
 
 
83
 
 
9
 
 
21
 
 
5
 
 
31
 
 
Africa
 
1
 
 
0.2
 
 
6
 
 
49
 
 
6
 
 
5
 
 
30
 
 
35
 
 
Latin America and Caribbean
 
(1
 
)
 
(0.1
 
)
 
9
 
 
57
 
 
6
 
 
6
 
 
21
 
 
44
 
 
Asia Pacific
 
7
 
 
3.4
 
 
13
 
 
156
 
 
13
 
 
24
 
 
35
 
 
106
 
 
Corporate
 
-
 
 
-
 
 
4
 
 
1
 
 
(50
 
)
 
(2
 
)
 
13
 
 
12
 
 
Diageo
 
4
 
 
4.4
 
 
7
 
 
476
 
 
9
 
 
90
 
 
12
 
 
264
 
 
 
(i) Before operating exceptional items.  
 
Notes to the business and financial review
 
 
 
Unless otherwise stated:   
 
●     commentary below refers to organic movements
●     volume is in millions of equivalent units (EUm)
●     net sales are sales after deducting excise duties
●     percentage movements are organic movements
●     share refers to value share
 
See Explanatory Notes for explanation of the calculation and use of non-GAAP measures.
 
 
BUSINESS REVIEW
Six months ended 31 December 2018
 
 
North America
 
 
 
North America delivered net sales growth of 6%, with growth across all markets. The disposal of a portfolio of 19 brands to Sazerac, that was completed on 20 December 2018, positively impacted net sales growth of the region by 78bps. In US Spirits, net sales increased 5%, with overall share trends improving. Net sales in Crown Royal increased 4%, largely driven by Regal Apple and the limited time offer Salted Caramel. Bulleit net sales were up 7% and continued to gain share in US whiskey. Scotch grew 10% with broad based growth across brands and share gains in the category. Vodka net sales were flat, an improvement versus last year, as the successful launch of Ketel One Botanical more than offset net sales decline in Smirnoff and Cîroc vodka. Captain Morgan net sales declined 9% and lost share in a declining category. In tequila, both Don Julio and Casamigos delivered strong double digit growth and gained share in the category.  Diageo Beer Company USA net sales grew 13% largely driven by growth in ready to drink, as a result of successful prior year innovation launches.  Performance in beer also improved. Net sales in Canada increased 5% as the spirits business lapped a weaker comparative in the same period last year and with good growth in ready to drink.  Operating margin declined 112bps largely driven by gross margin decline as a result of negative market mix within the region, higher commodity and logistics costs and up-weighted marketing investment in US Spirits, with productivity efficiencies being reinvested in the business.
 
 
Key financials £ million:
 
 
 
F18 H1
 
FX
 
Reclassifi-cation(i)
 
Acquisitionsanddisposals
 
Organic movement
 
F19 H1
 
Reported movement%
 
Net sales
 
 
2,183
 
 
44
 
 
1
 
 
(2
 
)
 
130
 
 
2,356
 
 
8
 
 
Marketing
 
 
338
 
 
10
 
 
(1
 
)
 
-
 
 
36
 
 
383
 
 
13
 
 
Operating profit
 
 
1,027
 
 
39
 
 
1
 
 
(2
 
)
 
36
 
 
1,101
 
 
7
 
 
 
(i)   Reclassification comprises a reallocation of the results of Travel Retail to the geographical regions.
 
Markets:
 
 
 
 
 
 
Global giants, local stars and reserve(i):
 
 
Organicvolumemovement
 
Reportedvolumemovement
 
Organicnet salesmovement
 
Reportednet salesmovement
 
 
 
Organicvolumemovement(ii)
 
Organicnet salesmovement
 
Reportednet salesmovement
 
 
%
 
%
 
%
 
%
 
 
 
%
 
%
 
%
 
North America
 
3
 
 
2
 
 
6
 
 
8
 
 
 
Crown Royal
 
5
 
 
4
 
 
7
 
 
 
 
 
 
 
 
Smirnoff
 
-
 
 
(1
 
)
 
-
 
 
US Spirits
 
1
 
 
-
 
 
5
 
 
7
 
 
 
Captain Morgan
 
(6
 
)
 
(7
 
)
 
(6
 
)
 
DBC USA
 
10
 
 
10
 
 
13
 
 
15
 
 
 
Johnnie Walker
 
9
 
 
10
 
 
12
 
 
Canada
 
5
 
 
5
 
 
5
 
 
3
 
 
 
Ketel One(iii)
 
19
 
 
22
 
 
25
 
 
 
 
 
 
 
 
Cîroc vodka
 
(11
 
)
 
(14
 
)
 
(11
 
)
 
Spirits
 
2
 
 
1
 
 
5
 
 
7
 
 
 
Baileys
 
3
 
 
4
 
 
5
 
 
Beer
 
(1
 
)
 
(1
 
)
 
1
 
 
3
 
 
 
Guinness
 
(1
 
)
 
2
 
 
4
 
 
Ready to drink
23
 
 
23
 
 
22
 
 
24
 
 
 
Tanqueray
 
(2
 
)
 
(5
 
)
 
(1
 
)
 
 
 
 
 
 
 
Don Julio
 
22
 
 
28
 
 
31
 
 
 
 
 
 
 
 
Bulleit
 
10
 
 
7
 
 
10
 
 
 
 
 
 
 
 
Buchanan's
 
12
 
 
7
 
 
9
 
 
 
(i)     Spirits brands excluding ready to drink.
(ii)   Organic equals reported volume movement except for Johnnie Walker 8%, Cîroc vodka (12%), Baileys 2% and Tanqueray (3%), largely due to the reallocation of the results of Travel Retail.
(iii)   Ketel One includes Ketel One vodka and Ketel One Botanical.
 
●     Net sales in US Spirits were up 5%, broadly in line with depletions. The net sales growth benefitted from the disposal of a portfolio of 19 brands to Sazerac that was completed on 20 December 2018. Crown Royal net sales were up 4% and gained share in its category. Growth was largely driven by Regal Apple and the limited time offer Salted Caramel, which more than offset a net sales decline in Crown Royal Deluxe which lapped strong growth in the prior year.  Net sales in Bulleit were up 7% as the brand benefitted from the scaled up "frontier work" platform.  In scotch, share gains were achieved by Johnnie Walker, Buchanan's and the portfolio of scotch malts. Johnnie Walker net sales increased 9% largely driven by the successful launch of "White Walker by Johnnie Walker" inspired by the TV series Game of Thrones. In vodka, net sales were flat, an improvement, having declined 8% in the prior year. Ketel One vodka net sales were up 22% as the trademark benefitted from the successful launch of Ketel One Botanical, and offset declines in Smirnoff and Cîroc vodka. Smirnoff net sales declined 2% but brand equity scores improved through focus on its quality credentials at a great price and the introduction of the new "Fun Percent" campaign platform which highlights Smirnoff's unique view point of the world through "You Don't Need a Lot to Have a Good Time". Captain Morgan net sales declined 9% as the brand was impacted by a strong comparative in the prior year and category decline. Baileys grew 4% and gained category share as it continued to focus on reminding consumers of its indulgent treat year-round positioning. In tequila, Don Julio and Casamigos grew strong double digit and gained share in the period within the tequila category.
●     DBC USA net sales increased 13% with good performance in both ready to drink and beer. Ready to drink net sales increased 24%, as the business continued to benefit from the success of Smirnoff Spiked Seltzer and Smirnoff Ice Smashed roll out, as well as growth in core Smirnoff Ice. In beer, net sales were up 2% driven by Guinness, with the brand expanding consumption occasions at home and in craft bars and benefitting from the successful opening of its Open Gate Brewery and Barrel House in Maryland.
●     Net sales in Canada grew 5%, driven by growth in ready to drink and spirits. In ready to drink, growth was driven by Smirnoff Ice which benefitted from packaging renovation and the launch of new flavours. Spirits net sales were up 4% with broad based growth across all categories, as the business also benefitted from a weak comparative in the prior year. 
●     Marketing grew 10% with an up-weight in investment to continue to strengthen brand equity and deliver sustainable growth in the medium term.
 
 
 
Europe and Turkey
 
 
 
Europe and Turkey delivered 5% net sales growth, reflecting another half year of consistent performance in Europe where net sales were up 5% with double digit growth in Turkey. Europe growth was driven by Great Britain, Ireland and Continental Europe. Strong growth in gin continued with Tanqueray and Gordon's growing double digit. Western Europe gained over 600bps of market share in gin. Both Gordon's and Tanqueray continued to benefit from strong growth across their core and innovation variants. Beer was up 4% driven by strong performance from Guinness Draught, continued growth of Hop House 13 Lager and the successful launch of Rockshore lager in Ireland. Scotch net sales were down 1% as innovation led growth in Johnnie Walker was more than offset by the weaker performance of JeB and scotch malts. Smirnoff net sales grew 1% driven by growth in Great Britain and Ireland partially offset by a decline in Continental Europe. Ready to drink grew 28% driven by strong growth across the Gordon's premix range. In Turkey, net sales were up 10% driven by inflation and excise led price increases. The operating margin remained flat as positive price/mix and productivity savings were offset by up-weighted marketing investment, as well as inflationary pressure, especially in Turkey. 
 
Key financials £ million:
 
 
F18 H1
 
FX
 
Reclassifi-cation(i)
 
Acquisitionsanddisposals
 
Organic movement
 
F19 H1
 
Reported movement%
 
Net sales
 
1,599
 
 
(60
 
)
 
12
 
 
(1
 
)
 
83
 
 
1,633
 
 
2
 
 
Marketing
 
246
 
 
(7
 
)
 
-
 
 
-
 
 
21
 
 
260
 
 
6
 
 
Operating profit
 
599
 
 
(25
 
)
 
9
 
 
-
 
 
31
 
 
614
 
 
3
 
 
 
(i)   Reclassification comprises a reallocation of the results of Travel Retail to the geographical regions.
 
 
Markets:
 
 
 
 
 
 
Global giants and local stars(i):
 
 
Organicvolumemovement
 
Reportedvolumemovement
 
Organicnet salesmovement
 
Reportednet salesmovement
 
 
 
Organicvolumemovement(ii)
 
Organicnet salesmovement
 
Reportednet salesmovement
 
 
%
 
%
 
%
 
%
 
 
 
%
 
%
 
%
 
Europe and Turkey
 
 
 
 
 
 
Guinness
 
3
 
 
3
 
 
3
 
 
1
 
 
2
 
 
5
 
 
2
 
 
 
Johnnie Walker
 
(2
 
)
 
3
 
 
6
 
 
 
 
 
 
 
 
Smirnoff
 
-
 
 
1
 
 
1
 
 
Europe
 
4
 
 
4
 
 
5
 
 
4
 
 
 
Baileys
 
(3
 
)
 
-
 
 
(1
 
)
 
Turkey
 
(11
 
)
 
(12
 
)
 
10
 
 
(25
 
)
 
 
Yenì Raki
 
(17
 
)
 
5
 
 
(29
 
)
 
 
 
 
 
 
 
Captain Morgan
 
2
 
 
(1
 
)
 
(3
 
)
 
Spirits
 
1
 
 
1
 
 
4
 
 
-
 
 
 
JeB
 
(9
 
)
 
(9
 
)
 
(9
 
)
 
Beer
 
5
 
 
5
 
 
4
 
 
4
 
 
 
Tanqueray
 
25
 
 
34
 
 
33
 
 
Ready to drink
 
24
 
 
23
 
 
28
 
 
27
 
 
 
 
 
 
 
 
(i)   Spirits brands excluding ready to drink.
(ii)  Organic equals reported volume movement except for Johnnie Walker 1%, Captain Morgan 1%, JeB (8%) and Tanqueray 24% largely due to the reallocation of the results of Travel Retail.
 
●     In Europe, net sales were up 5%:
    In Great Britain, net sales grew 14%. Gordon's and Tanqueray both delivered strong double digit growth. Diageo gained almost 700bps of share in an expanding gin category. Guinness net sales grew 6% and gained 14bps of market share, driven by a strong performance for Hop House 13 Lager. Scotch net sales were flat as growth in Johnnie Walker and Bell's was offset by an increasingly competitive environment in scotch malts. Johnnie Walker grew 6% partially driven by the launch of "White Walker by Johnnie Walker". Smirnoff returned to growth with a 4% increase. Baileys net sales declined 5% driven by shipment phasing, but gained share in the category.
     Ireland grew net sales 5%. Beer grew net sales 3% driven by the launch of Rockshore lager and the continued growth of Hop House 13 Lager, partially offset by a 3% decline in Guinness Draught. In spirits net sales grew double digit largely driven by Gordon's and Baileys.
     In Continental Europe, net sales were up 1%:
    Iberia net sales grew 1%. Growth was driven by strong performance in Tanqueray, Baileys and Gordon's. Scotch declined 3% as growth in Cardhu and Johnnie Walker was offset by declines in JeB. In Spain market share in scotch was broadly flat, as the category continued to decline.
    In Central Europe, net sales declined 6% largely driven by volume declines in Germany following recent pricing actions.
     In Northern Europe net sales were up 10% driven by growth across both Benelux and the Nordics.
    In Mediterranean Hub, net sales were down by 5% lapping a strong comparative performance in the prior period.
     Europe Partner Markets grew net sales 6% driven by strong Guinness performance and continued growth in Johnnie Walker.
●     Russia net sales grew 2%. Growth was largely driven by scotch.
●    France net sales declined 1% due to a decline in JeB and Johnnie Walker, partially offset by double digit growth in Captain Morgan.
●    In Turkey, net sales grew 10% reflecting the impact of price taken in response to increases in excise duties and inflation. Growth was largely driven by Yenì Raki which grew net sales by 6% and scotch which grew double digit, led by strong growth in Johnnie Walker.
●     Marketing investment increased 9% focused on the most significant growth opportunities.
 
 
Africa
 
 
 
Africa net sales grew 6% with growth in East Africa, Africa Regional Markets and South Africa partially offset by a decline in Nigeria. In East Africa net sales grew 13% lapping prior year weakness following the presidential election in Kenya. Across Africa, beer net sales were up 5% with strong growth in Serengeti Lite in Tanzania and Senator Keg in Kenya. Guinness and Malta Guinness grew 5% and 10%, respectively across all key markets. Spirits delivered double digit net sales growth largely driven by Smirnoff 1818 and Tanqueray in South Africa, and Chrome Vodka in Kenya. Scotch has returned to growth at 1% driven by strong growth across East Africa, Africa Regional Markets and Nigeria, partially offset by declines in South Africa as a result of category weakness.  Operating margin improved by 336bps driven by improved price/mix and the continued benefit from productivity initiatives more than offsetting cost inflation.
 
 
Key financials £ million:
 
 
F18 H1
 
FX
 
Acquisitionsanddisposals
 
Organic movement
 
F19 H1
 
Reported movement%
 
Net sales
 
774
 
 
(1
 
)
 
(1
 
)
 
49
 
 
821
 
 
6
 
 
Marketing
 
83
 
 
3
 
 
-
 
 
5
 
 
91
 
 
10
 
 
Operating profit
 
120
 
 
(2
 
)
 
-
 
 
35
 
 
153
 
 
28
 
 
 
 
Markets:
 
 
 
 
 
 
Global giants and local stars(i):
 
 
Organicvolumemovement
 
Reportedvolumemovement
 
Organicnet salesmovement
 
Reportednet salesmovement
 
 
 
Organicvolumemovement
 
Organicnet salesmovement
 
Reportednet salesmovement
 
 
%
 
%
 
%
 
%
 
 
 
%
 
%
 
%
 
Africa
 
1
 
 
1
 
 
6
 
 
6
 
 
 
Guinness
 
3
 
 
5
 
 
5
 
 
 
 
 
 
 
 
Johnnie Walker
 
(8
 
)
 
(1
 
)
 
(1
 
)
 
East Africa
 
13
 
 
13
 
 
13
 
 
16
 
 
 
Smirnoff
 
2
 
 
14
 
 
12
 
 
Africa Regional Markets(ii)
 
(4
 
)
 
4
 
 
6
 
 
10
 
 
 
 
 
 
 
Nigeria
 
(13
 
)
 
(13
 
)
 
(4
 
)
 
(3
 
)
 
 
Other beer:
 
South Africa(ii)
 
-
 
 
(10
 
)
 
4
 
 
(8
 
)
 
 
 
 
 
 
 
 
 
 
 
 
Malta Guinness
 
4
 
 
10
 
 
7
 
 
Spirits
 
5
 
 
5
 
 
11
 
 
9
 
 
 
Tusker
 
(8
 
)
 
(3
 
)
 
(1
 
)
 
Beer
 
1
 
 
1
 
 
5
 
 
7
 
 
 
Senator
 
20
 
 
23
 
 
27
 
 
Ready to drink
 
(1
 
)
 
(1
 
)
 
7
 
 
6
 
 
 
Serengeti
 
59
 
 
65
 
 
65
 
 
 
(i)     Spirits brands excluding ready to drink.
(ii)    In the six months ended 31 December 2018 the following countries, Mozambique, Zambia, Zimbabwe, St Helena and Malawi, moved on a management basis from South Africa to Africa Regional Markets. This reallocation has been reflected in the organic reporting.
 
●    In East Africa, net sales grew by 13%. Kenya benefitted from lapping prior year weakness driven by political uncertainty following the presidential election and Tanzania continued to grow double digit. Beer grew 12% led by continued strong growth in Serengeti Lite in Tanzania and a return to growth of Senator Keg in Kenya. Guinness grew by 3%. Mainstream spirits continued to grow strong double digit.
 
●     In Africa Regional Markets, net sales increased by 6% with growth in Ghana and a return to growth in Cameroon as it lapped prior year challenges in the distributor network. Beer grew 6% driven by growth across all key brands with particularly strong performance in Malta Guinness and return to growth in Guinness. Scotch also returned to growth lapping a weak comparative in Cameroon.
 
●    South Africa net sales returned to growth of 4% driven by strong spirits performance in Tanqueray, Captain Morgan and double digit growth in Smirnoff 1818.
 
●    In Nigeria, net sales declined by 4% as growth in Guinness and double digit growth in spirits was more than offset by competitive pressure impacting the lager segment. 
 
●    Marketing investment increased 6%. In Nigeria, marketing was focused on key campaigns including Malta Guinness "Fuel Your Greatness". In East Africa last year's successful Guinness campaign was evolved as "Win a Chance to meet Rio Ferdinand" and Serengeti is a sponsor of the Tanzanian national football team.
 
 
Latin America and Caribbean
 
 
 
Latin America and Caribbean delivered 9% growth in net sales with strong performance in Mexico, Colombia and CCA, which benefitted from lapping the impact of last year's hurricanes. Growth in the region was broad based across all categories. Scotch grew 8% with continued solid performance of Johnnie Walker and primary scotch growing 8% and 15%, respectively. Buchanan's was up 8% and Old Parr returned to growth as the brands benefitted from lapping last year's tax changes in Colombia. Don Julio delivered double digit growth led by Mexico. Tanqueray and Smirnoff's double digit growth was driven by Brazil. Operating margin for the region increased 365bps benefitting from improved price/mix and productivity led efficiencies partially offset by inflationary pressure on commodity input costs.
 
Key financials £ million:
 
 
F18 H1
 
FX
 
Reclassifi-cation(i)
 
Acquisitionsanddisposals
 
Organic movement
 
F19 H1
 
Reported movement%
 
Net sales
 
649
 
 
(35
 
)
 
-
 
 
1
 
 
57
 
 
672
 
 
4
 
 
Marketing
 
109
 
 
(6
 
)
 
1
 
 
-
 
 
6
 
 
110
 
 
1
 
 
Operating profit
 
218
 
 
(7
 
)
 
(1
 
)
 
-
 
 
44
 
 
254
 
 
17
 
 
 
(i)   Reclassification comprises a reallocation of the results of Travel Retail to the geographical regions.
 
 
Markets:
 
 
 
 
 
 
Global giants and local stars(i):
 
 
Organicvolumemovement
 
Reportedvolumemovement
 
Organicnet salesmovement
 
Reportednet salesmovement
 
 
 
Organicvolumemovement(ii)
 
Organicnet salesmovement
 
Reportednet salesmovement
 
 
%
 
%
 
%
 
%
 
 
 
%
 
%
 
%
 
Latin America and Caribbean
 
 
 
 
 
 
Johnnie Walker
 
5
 
 
8
 
 
3
 
 
(1
 
)
 
(1
 
)
 
9
 
 
4
 
 
 
Buchanan's
 
2
 
 
8
 
 
4
 
 
 
 
 
 
 
 
Smirnoff
 
6
 
 
13
 
 
-
 
 
PUB
 
(4
 
)
 
(4
 
)
 
-
 
 
(13
 
)
 
 
Old Parr
 
3
 
 
5
 
 
2
 
 
Mexico
 
4
 
 
4
 
 
9
 
 
7
 
 
 
Baileys
 
2
 
 
9
 
 
9
 
 
CCA
 
17
 
 
17
 
 
22
 
 
27
 
 
 
Ypióca
 
(10
 
)
 
1
 
 
(15
 
)
 
Andean
 
(29
 
)
 
(29
 
)
 
20
 
 
9
 
 
 
Black & White
 
11
 
 
7
 
 
(2
 
)
 
PEBAC
 
13
 
 
13
 
 
2
 
 
(1
 
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Spirits
 
(1
 
)
 
-
 
 
10
 
 
5
 
 
 
 
 
 
 
Beer
 
4
 
 
4
 
 
(11
 
)
 
(13
 
)
 
 
 
 
 
 
Ready to drink
 
(8
 
)
 
(8
 
)
 
7
 
 
(2
 
)
 
 
 
 
 
 
 
(i)   Spirits brands excluding ready to drink.
(ii)  Organic equals reported volume movement except for Johnnie Walker 6%, Old Parr 4%, and Baileys 5% largely due to the reallocation of the results of Travel Retail.
 
●     In PUB (Paraguay, Uruguay and Brazil), net sales were flat. Brazil delivered 2% growth. Scotch net sales declined 3% lapping a strong first half in the prior year. Black & White declined as it was impacted by a state tax change in Brazil. Scaled up commercial activations in conjunction with media support helped Tanqueray grow triple digit and become the market leader in the gin category in Brazil. Smirnoff grew double digit benefitting from the continued expansion of small formats to drive accessibility and ongoing focus behind the brand's biggest serve Caipiroska through a national omni-channel competition "The Best Caipiroska in Brazil".
●     In Mexico, net sales increased 9%. Growth was broad based but led by Don Julio which gained more than 2pps share of the tequila category, reflecting strong brand momentum and well-executed marketing campaigns and commercial platforms. Scotch grew 7% with Johnnie Walker up 11% and Black & White up 8% supported by an increased focus on brand availability through trade activations.
●    In CCA (Caribbean and Central America), net sales increased 22% benefitting from lapping a weaker first half last year following the impact of the hurricanes. Growth was broad based but led by Johnnie Walker Black Label  which grew double digit as it benefitted from greater visibility with the "Keep Walking" campaign.
●    Andean (Colombia and Venezuela) net sales increased 20% with Colombia lapping the impact of tax changes last year. Scotch delivered double digit net sales growth with contributions from Buchanan's supported by local media campaigns and Black & White benefitting from route to consumer expansion. Venezuela volume was still in decline as economic conditions continued to deteriorate.
●     PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) delivered 2% net sales growth, driven by Ecuador and Chile but offset by Argentina, which faced the continuing impact of currency devaluation, and Peru, which was impacted by tax changes. Growth was driven by scotch with strong contribution from Johnnie Walker Red Label and VAT 69 taking market share from local spirits.
●     Marketing investment increased by 6%, focused on scotch with support for key campaigns including Johnnie Walker "We are all Human", Buchanan's "Vivamos Grandes Momentos" and Old Parr "Cambia el Guión".
 
 
Asia Pacific
 
 
 
In Asia Pacific net sales grew 13% with strong growth in Greater China, India, South East Asia and Travel Retail Asia and Middle East. This was partially offset by the continued contraction of the scotch category in Korea. Greater China grew 20% driven by strong performance in both scotch and Chinese white spirits. Net sales in India grew 12%, largely driven by both IMFL whisky and scotch in the prestige and above segment, and enhanced by lapping a weak prior year. In scotch, net sales were up 15% as strong performance in Johnnie Walker and scotch malts more than offset the net sales decline of Windsor in Korea. Operating margin increased 486bps driven by positive price/mix and productivity led savings. 
 
Key financials £ million:
 
 
F18 H1
 
FX
 
Reclassifi-cation(i)
 
Acquisitionsanddisposals
 
Organic movement
 
F19 H1
 
Reported movement%
 
Net sales
 
1,298
 
(39)
 
(13
 
)
 
(4
 
)
 
156
 
 
1,398
 
 
8
 
 
Marketing
 
188
 
(4)
 
-
 
 
-
 
 
24
 
 
208
 
 
11
 
 
Operating profit
 
316
 
(3
 
)
 
(9
 
)
 
(1
 
)
 
106
 
 
409
 
 
29
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(i)   Reclassification includes a reallocation of the results of Travel Retail to the geographical regions.
 
 
Markets:
 
 
 
 
 
 
Global giants and local stars(ii):
 
 
Organicvolumemovement(i)
 
Reportedvolumemovement
 
Organicnet salesmovement
 
Reportednet salesmovement
 
 
 
Organicvolumemovement(iii)
 
Organicnet salesmovement
 
Reportednet salesmovement
 
 
%
 
%
 
%
 
%
 
 
 
%
 
%
 
%
 
Asia Pacific
 
7
 
 
7
 
 
13
 
 
8
 
 
 
Johnnie Walker
 
15
 
 
20
 
 
16
 
 
 
 
 
 
 
 
McDowell's
 
8
 
 
11
 
 
2
 
 
India
 
7
 
 
6
 
 
12
 
 
3
 
 
 
Windsor
 
(8
 
)
 
(20
 
)
 
(18
 
)
 
Greater China
 
7
 
 
4
 
 
20
 
 
19
 
 
 
Smirnoff
 
-
 
 
8
 
 
5
 
 
Australia
 
6
 
 
6
 
 
8
 
 
2
 
 
 
Guinness
 
3
 
 
6
 
 
3
 
 
South East Asia
 
16
 
 
16
 
 
16
 
 
18
 
 
 
Bundaberg
 
2
 
 
1
 
 
(4
 
)
 
North Asia
 
3
 
 
3
 
 
(7
 
)
 
(5
 
)
 
 
Shui Jing Fang(iv)
 
13
 
 
22
 
 
20
 
 
Travel Retail Asia and Middle East
 
15
 
 
4
 
 
24
 
 
12
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Spirits
 
7
 
 
7
 
 
13
 
 
8
 
 
 
 
 
 
 
 Beer
 
2
 
 
2
 
 
6
 
 
3
 
 
 
 
 
 
 
Ready to drink
 
5
 
 
5
 
 
11
 
 
8
 
 
 
 
 
 
 
 
(i)   Difference between organic and reported volume for India is in respect of the Nepal business disposal. 
(ii)  Spirits brands excluding ready to drink.
(iii)  Organic equals reported volume movement except for Johnnie Walker 11% largely due to the reallocation of the results of Travel Retail.
(iv) Organic growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand. Organic growth adjusted to remove bulk sales reported in the prior comparable period. Reported volume was up 4%.
 
●    In India net sales increased 12% benefitting from lapping weak prior year performance due to the impact of the Supreme Court ruling prohibiting the sale of alcohol in certain outlets near state highways and route to market changes in certain states. Prestige and above was up 17%, led by strong double digit growth in scotch, driven by Johnnie Walker and Black & White. This was supported by solid performance from McDowell's No. 1 enhanced by the launch of its new Platinum range and strong growth in Royal Challenge and Signature. Vodka net sales were up 10%, with Smirnoff expanding its distribution. Net sales in the popular brands segment increased 2%.
●     In Greater China net sales increased 20%, with growth in both Chinese white spirits and scotch, and enhanced by the benefit of an earlier Chinese New Year. As expected, Chinese white spirits net sales growth slowed to 22%. Scotch net sales increased by 19% with continued growth in mainland China and a return to growth in Taiwan.  The main drivers of scotch growth were Johnnie Walker super deluxe and scotch malts.
●     Net sales in Australia grew 8%, driven by strong performance in the ready to drink and spirits portfolios as it benefitted from lapping the prior year working capital efficiencies. Ready to drink net sales increased 13% fuelled by innovation geared towards more premium products like Gordon's Premium Pink and Soda, and Tanqueray & Tonic. Bundaberg continues to improve on the back of the "Unmistakably Ours" campaign.
●     In South East Asia, net sales increased 16% driven by growth across all countries except Thailand. Scotch has been the key growth driver with net sales growth of 16%, led by Johnnie Walker Black Label and super deluxe.
●     In North Asia, net sales declined 7% with growth in Japan being offset by continued weakness in Korea. In Korea net sales declined 15% due to a weak Windsor performance, associated with the contraction of the scotch category. Japan net sales grew 8%, driven by scotch, with share gains across most segments.
●     Travel Retail Asia and Middle East net sales grew 24% driven by improved commercial activation and successful launches within the premium scotch portfolio, including "White Walker by Johnnie Walker". 
●     Marketing investment increased by 13% driven by increased investment in China and India.
 
 
 
CATEGORY AND BRAND REVIEW
 
Six months ended 31 December 2018
 
 
Key categories:
 
 
Organicvolumemovement(iii)%
Organicnet salesmovement%
 
Reportednet salesmovement%
 
Spirits(i)
 
4
 
 
7
 
 
5
 
 
Scotch
 
4
 
 
7
 
 
6
 
 
Vodka(ii)(iv)
 
2
 
 
3
 
 
2
 
 
US whiskey
 
2
 
 
4
 
 
6
 
 
Canadian whisky
 
5
 
 
5
 
 
6
 
 
Rum(ii)
 
(4
 
)
 
(3
 
)
 
(5
 
)
 
Indian-Made Foreign Liquor (IMFL) whisky
 
9
 
 
11
 
 
2
 
 
Liqueurs
 
-
 
 
3
 
 
2
 
 
Gin(ii)
 
25
 
 
28
 
 
29
 
 
Tequila
 
18
 
 
29
 
 
36
 
 
Beer
 
2
 
 
4
 
 
5
 
 
Ready to drink
 
9
 
 
16
 
 
15
 
 
 
(i)   Spirits brands excluding ready to drink.
(ii)  Vodka, rum, gin including IMFL brands.
(iii)  Organic equals reported volume movement except for Canadian whisky 3%, IMFL whisky 8%, gin 24%, and tequila 23%, which were impacted by acquisitions and disposals.
(iv) Vodka includes Ketel One Botanical.
 
 
●     Scotch represents 27% of Diageo's net sales and was up 7% with growth in Asia Pacific, Latin America and Caribbean and North America partially offset by decline in Europe. Scotch growth was driven by Johnnie Walker, which delivered a strong performance with net sales up 10%. Primary scotch brands grew 10% largely driven by Black & White. Buchanan's grew 8% in Latin America and Caribbean and 7% in North America. Old Parr returned to growth as the brand lapped tax changes in Colombia. Scotch malts were up 5% with growth coming from Asia Pacific, North America and Latin America and Caribbean. JeB continued to be under pressure in Europe led by the challenged scotch category in Iberia. Sustained scotch category decline in Korea continued to drive declines in Windsor.
●     Vodka represents 11% of Diageo's net sales and returned to growth with net sales up 3% and growth across all the regions driven by Smirnoff and Ketel One(iv) partially offset by a decline in Cîroc vodka. Overall, Smirnoff grew 2%. Smirnoff performance outside the US was strong, up 6%, and more than offsetting 2% decline in US Spirits. Ketel One(iv)performance was driven by strong growth in US Spirits and Europe. Cîroc vodka decline was driven by US Spirits.
●    US whiskey represents 2% of Diageo's net sales and grew 4%. Performance continued to be driven by strong growth in Bulleit benefitting from the scaled up "Frontier Work" platform.
●     Canadian whisky represents 7% of Diageo's net sales and grew 5%. Solid growth of Crown Royal in US Spirits was largely driven by Regal Apple and the limited time offer Salted Caramel.
●     Rum represents 7% of Diageo's net sales and declined 3% largely driven by Captain Morgan in US Spirits. 
●   IMFL whisky represents 5% of Diageo's net sales and grew 11% driven by the strong performance of the McDowell's trademark, Royal Challenge and Signature, all brands in double digit growth.
●     Liqueurs represent 6% of Diageo's net sales and grew 3% driven by Baileys. Performance was driven by continued focus on reminding consumers of Baileys' indulgent treat year-round positioning.
●    Gin represents 4% of Diageo's net sales and grew 28% with double digit growth across all regions except North America. Europe was the largest contributor to growth driven by the strong performance of Gordon's and Tanqueray. In Western Europe we gained over 600bps of market share in gin.
●     Tequila represents 3% of Diageo's net sales and grew 29%. The performance was driven by strong double digit growth of Don Julio in US Spirits and Latin America and Caribbean as well as Casamigos in US Spirits.
●    Beer represents 15% of Diageo's net sales and grew 4%, largely driven by Guinness with growth coming from all regions except Latin America and Caribbean. Guinness net sales were up 4% with strong performance in Europe driven by Guinness Draught and continued growth of Hop House 13 Lager. Europe also saw the successful launch of Rockshore lager in Ireland. Africa had a good performance with Guinness growing 5% and strong performance of Senator Keg and Serengeti Lite.
●     Ready to drink represents 5% of Diageo's net sales and grew 16% primarily driven by North America and Europe.
 
Global giants, local stars and reserve(i):
 
 
Organicvolumemovement(ii)%
 
Organicnet salesmovement%
 
Reportednet salesmovement%
 
Global giants
 
 
 
 
Johnnie Walker
 
5
 
 
10
 
 
9
 
 
Smirnoff
 
1
 
 
2
 
 
2
 
 
Baileys
 
-
 
 
3
 
 
3
 
 
Captain Morgan
 
(2
 
)
 
(4
 
)
 
(3
 
)
 
Tanqueray
 
20
 
 
21
 
 
22
 
 
Guinness
 
3
 
 
4
 
 
4
 
 
Local stars
 
 
 
 
Crown Royal
 
5
 
 
5
 
 
7
 
 
Yenì Raki
 
(17
 
)
 
5
 
 
(29
 
)
 
Buchanan's
 
5
 
 
7
 
 
6
 
 
JeB
 
(11
 
)
 
(10
 
)
 
(10
 
)
 
Windsor
 
(8
 
)
 
(20
 
)
 
(18
 
)
 
Old Parr
 
5
 
 
6
 
 
3
 
 
Bundaberg
 
2
 
 
1
 
 
(4
 
)
 
Black & White
 
11
 
 
16
 
 
7
 
 
Ypióca
 
(10
 
)
 
1
 
 
(15
 
)
 
McDowell's
 
8
 
 
10
 
 
2
 
 
Shui Jing Fang(iii)
 
13
 
 
22
 
 
20
 
 
Reserve
 
 
 
 
Scotch malts
 
4
 
 
5
 
 
8
 
 
Cîroc vodka
 
(9
 
)
 
(12
 
)
 
(9
 
)
 
Ketel One(iv)
 
18
 
 
21
 
 
24
 
 
Don Julio
 
13
 
 
26
 
 
27
 
 
Bulleit
 
8
 
 
6
 
 
8
 
 
 
(i)   Spirits brands excluding ready to drink.
(ii)  Organic equals reported volume movement except for scotch malts 5%.
(iii)  Organic growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand. Organic growth adjusted to remove bulk sales reported in the comparable period last year. Reported volume was up 4%.
(iv) Ketel One includes Ketel One vodka and Ketel One Botanical.
 
●     Global giants represent 42% of Diageo's net sales and grew 6%. Growth was broad based across all brands with the exception of Captain Morgan whose net sales declined 4%.  
●     Local stars represent 20% of Diageo's net sales and grew 6%, largely driven by strong growth of Chinese white spirits, McDowell's No. 1 in India, Crown Royal in US Spirits and Buchanan's in Latin America and Caribbean. This was partially offset by declines of Windsor in Korea and JeB in Iberia.
●     Reserve brands represent 19% of Diageo's net sales and grew 11% largely driven by strong double digit growth in Don Julio, Chinese white spirits and Ketel One vodka. Net sales of Johnnie Walker reserve variants were up 6%. 
 
 
 
ADDITIONAL FINANCIAL INFORMATION
Six months ended 31 December 2018
 
SUMMARY INCOME STATEMENT
 
 
 
 
31 December 2017
 
Exchange(a)
 
Acquisitions and disposals(b)
 
Organic movement(i)
 
31 December 2018
 
 
£ million
 
£ million
 
£ million
 
£ million
 
£ million
 
Sales
 
9,934
 
 
(314
 
)
 
(13
 
)
 
756
 
 
10,363
 
 
Excise duties
 
(3,404
 
)
 
223
 
 
6
 
 
(280
 
)
 
(3,455
 
)
 
Net sales
 
6,530
 
 
(91
 
)
 
(7
 
)
 
476
 
 
6,908
 
 
Cost of sales
 
(2,439
 
)
 
68
 
 
5
 
 
(142
 
)
 
(2,508
 
)
 
Gross profit
 
4,091
 
 
(23
 
)
 
(2
 
)
 
334
 
 
4,400
 
 
Marketing
 
(968
 
)
 
4
 
 
-
 
 
(90
 
)
 
(1,054
 
)
 
Other operating expenses
 
(933
 
)
 
19
 
 
(1
 
)
 
20
 
 
(895
 
)
 
Operating profit before exceptional items
 
2,190
 
 
-
 
 
(3
 
)
 
264
 
 
2,451
 
 
Exceptional operating items (c)
 
-
 
 
 
 
 
(21
 
)
 
Operating profit
 
2,190
 
 
 
 
 
2,430
 
 
Non-operating items (c)
 
-
 
 
 
 
 
146
 
 
Net finance charges
 
(154
 
)
 
 
 
 
(128
 
)
 
Share of after tax results of associates and joint ventures
 
168
 
 
 
 
 
179
 
 
Profit before taxation
 
2,204
 
 
 
 
 
2,627
 
 
Taxation (d)
 
(77
 
)
 
 
 
 
(560
 
)
 
Profit for the period
 
2,127
 
 
 
 
 
2,067
 
 
 
(i)   For the definition of organic movement see Explanatory Notes.
 
 
(a) Exchange
The impact of movements in exchange rates on reported figures is principally in respect of strengthening of sterling against the Turkish lira, the Brazilian real, the Indian rupee, the Australian dollar and the Russian rouble, partially offset by weakening of sterling against the US dollar.
 
The effect of movements in exchange rates and other movements on profit before exceptional items and taxation for the six months ended 31 December 2018 is set out in the table below.
 
 
Gains/(losses)
 
 
£ million
 
Translation impact
 
(27)
 
Transaction impact
 
27
 
Operating profit before exceptional items
 
-
 
 
Net finance charges - translation impact
 
(2)
 
Impact of IAS 21 and IFRS 9 on net other finance charges
 
(3)
 
Net finance charges
 
(5)
 
Associates - translation impact
 
-
 
 
Profit before exceptional items and taxation
 
(5)
 
 
 
 
Six months ended 31 December 2018
 
Six months ended 31 December 2017
 
Exchange rates
 
 
 
Translation  £1 =
 
$1.29
 
 
$1.32
 
 
Transaction £1 =
 
$1.31
 
 
$1.41
 
 
Translation  £1 =
 
€1.12
 
 
€1.12
 
 
Transaction £1 =
 
€1.13
 
 
€1.17
 
 
 
 
(b) Acquisitions and disposals
The acquisitions and disposals movement was mainly attributable to the disposal of a portfolio of 19 brands (see the list of brands disposed of in Explanatory Notes) to Sazerac completed on 20 December 2018.
 
(c) Exceptional items
Exceptional operating charges in the six months ended 31 December 2018 were £21 million before tax (2017 - £nil).
 
On 26 October 2018, the High Court of Justice of England and Wales issued a judgment in a claim between Lloyds Banking Group Pension Trustees Limited (the claimant) and Lloyds Bank plc (defendant) that UK pension schemes should equalise pension benefits for men and women for the calculation of their guaranteed minimum pension liability. The judgment concluded that the claimant has a duty to amend their pension schemes to equalise benefits and provided comments on the method to be adopted to equalise the benefits. This court ruling impacts the majority of companies with a UK defined benefit pension plan that was in existence before 1997. For the Diageo Pension Scheme (DPS) an estimate was made of the impact of equalisation which increased the liabilities of the DPS by £21 million with a corresponding charge to exceptional operating items. Additional work will be carried out to finalise the charge post 31 December 2018.
 
Non-operating exceptional items in the six months ended 31 December 2018 were £146 million before tax (2017 - £nil). 
 
Diageo completed the sale of a portfolio of 19 brands on 20 December 2018 to Sazerac for an aggregate consideration of $550 million (£435 million). The net proceeds of approximately £340 million, after corporate tax and transaction costs, will be returned to shareholders through a share buyback programme, which will be incremental to the previously announced programme. The transaction resulted in an exceptional gain before taxation of £154 million.
 
The disposal of United National Breweries (UNB), Diageo's wholly owned sorghum business in South Africa, was agreed in December 2018 and is subject to receipt of regulatory approvals. The prospective sale has resulted in an exceptional loss of approximately £8 million.
 
See Explanatory Notes for the definition of exceptional items.
 
(d) Taxation
The reported tax charge for the six months ended 31 December 2018 was 21.3% compared with 3.5% for the six months ended 31 December 2017. 
The tax charge for the six months ended 31 December 2018 included exceptional tax charges of £34 million in respect of the disposal of a portfolio of 19 brands to Sazerac and an exceptional tax credit of £4 million in respect of the equalisation of liabilities for males and females in the Diageo Pension Scheme. In the six months ended 31 December 2017 there was an exceptional tax credit of £360 million ($475 million) as a consequence of the reduction in the US Federal tax rate (from 35% to 21%) enacted by the Tax Cuts and Jobs Act in the United States.
The tax rate before exceptional items for the six months ended 31 December 2018 was 21.2% compared with 19.8% in the six months ended 31 December 2017.
It is expected that the tax rate before exceptional items for the year ending 30 June 2019 will be in the range of 21% to 22%.
 
(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 2018 dividend cover was 1.8 times. It is expected that dividend increases will be maintained at roughly a mid-single digit rate until the cover is comfortably back in the policy range.
An interim dividend of 26.1 pence per share will be paid to holders of ordinary shares and ADRs on the register as of 1 March 2019. The ex-dividend date is 28 February 2019. This represents an increase of 5% on last year's interim dividend. The interim dividend will be paid to ordinary shareholders on 11 April 2019. Payment to US ADR holders will be made on 16 April 2019. A dividend reinvestment plan is available to holders of ordinary shares in respect of the interim dividend and the plan notice date is 21 March 2019. 
 
(f) Share buyback
On 26 July 2018 the Board approved a share buyback programme to return up to £2.0 billion to shareholders during the year ending 30 June 2019. 
On 20 December 2018 Diageo completed the sale of a portfolio of 19 brands to Sazerac. The net proceeds of approximately £340 million, after corporate tax and transaction costs, will be returned to shareholders through a share buyback programme, which brought the total programme to £2.34 billion.
On 30 January 2019 the Board approved an incremental share buyback programme of £660 million, bringing the total programme up to £3.0 billion for the year ending 30 June 2019.
At 31 December 2018 the group had purchased 46.5 million ordinary shares at a cost of £1.275 billion (including £7 million of transaction costs) and has funded the purchases through a combination of cash and borrowings. A financial liability of £80 million has been established at 31 December 2018 (2017 - £182 million) representing the 2.9 million shares that are expected to be purchased by 31 January 2019.
 
 
 
MOVEMENT IN NET BORROWINGS AND EQUITY
 
 
 
Movement in net borrowings
 
 
 
2018
 
2017
 
 
£ million
 
£ million
 
Net borrowings at 30 June
 
(9,091
 
)
 
(7,892
 
)
 
Free cash flow (a)
 
1,346
 
 
1,029
 
 
Acquisitions (b)
 
(32
 
)
 
(561
 
)
 
Sale of businesses and brands (c)
 
419
 
 
2
 
 
Share buyback programme
 
(1,275
 
)
 
(742
 
)
 
Proceeds from issue of share capital
 
1
 
 
1
 
 
Net sale/(purchase) of own shares for share schemes (d)
 
25
 
 
(28
 
)
 
Dividends paid to non-controlling interests
 
(76
 
)
 
(61
 
)
 
Rights issue proceeds from non-controlling interests of subsidiary company
 
-
 
 
26
 
 
Net movements in bonds (e)
 
1,754
 
 
188
 
 
Purchase of shares of non-controlling interests (f)
 
(697
 
)
 
-
 
 
Net movements in other borrowings (g)
 
220
 
 
911
 
 
Equity dividends paid
 
(993
 
)
 
(968
 
)
 
Net increase/(decrease) in cash and cash equivalents
 
692
 
 
(203
 
)
 
Net increase in bonds and other borrowings
 
(1,974
 
)
 
(1,099
 
)
 
Exchange differences (h)
 
(32
 
)
 
47
 
 
Other non-cash items
 
53
 
 
(51
 
)
 
Net borrowings at 31 December
 
(10,352
 
)
 
(9,198
 
)
 
 
 
(a) See Free Cash Flow for the analysis of free cash flow.
 
(b) On 28 September 2018 Diageo acquired the remaining 70% of Copper Dog Whisky Limited (CDWL) that it did not already own for an upfront valuation of £6.5 million and further earn-out payments based on CDWL achieving performance targets. The discounted current estimate for the earn-out payments is £10 million. Other acquisitions include deferred consideration paid in respect of prior year acquisitions and additional investments in a number of Distill Venture associates.
      In the six months ended 31 December 2017 acquisitions included $705 million (£548 million) in respect of the completion of the acquisition of Casamigos. 
 
(c) In the six months ended 31 December 2018, sale of businesses and brands represents the disposal of a portfolio of 19 brands to Sazerac net of transaction costs.
 
(d) Net sale/purchase of own shares comprised purchase of treasury shares for the future settlement of obligations under the employee share option schemes of £1 million (2017 - £67 million) less receipts from employees on the exercise of share options of £26 million (2017 - £39 million).
 
(e) In the six months ended 31 December 2018, the group issued bonds of €2,000 million (£1,754 million). In the comparable period the group issued bonds of €1,275 million (£1,136 million) and repaid bonds of $1,250 million (£948 million).
 
(f) In the six months ended 31 December 2018 purchase of shares of non-controlling interests comprised RMB 6,084 million (£696 million) and transaction costs of £1 million in respect of the acquisition of 20.29% of the share capital of Sichuan Shuijingfang Company Limited (SJF). This took Diageo's shareholding in SJF from 39.71% to 60%. SJF is a manufacturer and distributor of Chinese white spirits located in Sichuan province in China and was controlled and therefore consolidated prior to the transaction in the period.
 
(g) In the six months ended 31 December 2018 the net movement in other borrowings principally arose from cash movements on foreign exchange swaps and forwards. In the comparable period movements were driven by the issue of commercial paper and the cash movements of foreign exchange swaps and forwards.
 
(h) Increase in net borrowings of £32 million is primarily driven by the adverse exchange differences on US dollar and euro denominated borrowings partially offset by a favourable change on foreign exchange swaps and forwards.
 
Movement in equity
 
 
 
2018
 
2017
 
 
£ million
 
£ million
 
Equity at 30 June
 
11,713
 
 
12,028
 
 
Profit for the period
 
2,067
 
 
2,127
 
 
Exchange adjustments (a)
 
251
 
 
(428
 
)
 
Remeasurement of post employment plans net of taxation
 
150
 
 
(86
 
)
 
Purchase of shares of non-controlling interests (b)
 
(703
 
)
 
-
 
 
Rights issue proceeds from non-controlling interests of subsidiary company (c)
 
-
 
 
26
 
 
Dividends to non-controlling interests
 
(55
 
)
 
(61
 
)
 
Equity dividends paid
 
(993
 
)
 
(968
 
)
 
Share buyback programme
 
(1,355
 
)
 
(924
 
)
 
Other reserve movements
 
58
 
 
(24
 
)
 
Equity at 31 December
 
11,133
 
 
11,690
 
 
 
 
(a) Movement in the six months ended 31 December 2018 primarily arose from exchange gains in respect of the US dollar and Indian rupee partially offset by exchange losses on the Turkish lira.
 
(b) In the six months ended 31 December 2018 Diageo acquired 20.29% of the share capital of Sichuan Shuijingfang Company Limited (SJF) which was already controlled and therefore consolidated prior to the transaction. This took Diageo's shareholding in SJF from 39.71% to 60%.
 
(c) In the six months ended 31 December 2017 a rights issue was completed by Guinness Nigeria (GN) where Diageo's controlling equity share in GN increased from 54.32% to 58.02%. The transaction resulted in a credit of £31 million to non-controlling interests and a charge of £5 million to reserves.
 
Post employment plans
The net surplus of the group's post employment benefit plans increased by £234 million from £63 million at 30 June 2018 to £297 million at 31 December 2018. The increase primarily arose due to the increase in returns from 'AA' rated corporate bonds used to calculate the discount rates on the liabilities of the post employment plans (UK from 2.8% to 2.9%, Ireland from 1.7% to 2.0%) partially offset by a decrease in the market value of the assets held by the post employment schemes.
The operating profit charge before exceptional items decreased by £13 million from £45 million for the six months ended 31 December 2017 to £32 million for the six months ended 31 December 2018 primarily due to changes made to the future benefits earnt by employees in the Diageo Pension Scheme (DPS). The six months ended 31 December 2018 includes past service gains of £22 million following a communication to the members of the DPS reducing future pension increases which was broadly in line with a past service gain recognised in the six months ended 31 December 2017.
Total cash contributions by the group to all post employment plans in the year ending 30 June 2019 are estimated to be approximately £200 million. 
 
DIAGEO CONDENSED CONSOLIDATED INCOME STATEMENT
 
 
 
Six months ended 31 December 2018
 
 
Six months ended 31 December 2017
 
 
Notes
 
£ million
 
 
£ million
 
 
 
 
 
 
Sales
 
2
 
10,363
 
 
 
9,934
 
 
Excise duties
 
 
(3,455
 
)
 
 
(3,404
 
)
 
Net sales
 
2
 
6,908
 
 
 
6,530
 
 
Cost of sales
 
 
(2,508
 
)
 
 
(2,439
 
)
 
Gross profit
 
 
4,400
 
 
 
4,091
 
 
Marketing
 
 
(1,054
 
)
 
 
(968
 
)
 
Other operating expenses
 
 
(916
 
)
 
 
(933
 
)
 
Operating profit
 
2
 
2,430
 
 
 
2,190
 
 
Non-operating items
 
3
 
146
 
 
 
-
 
 
Finance income
 
4
 
181
 
 
 
113
 
 
Finance charges
 
4
 
(309
 
)
 
 
(267
 
)
 
Share of after tax results of associates and joint ventures
 
 
179
 
 
 
168
 
 
Profit before taxation
 
 
2,627
 
 
 
2,204
 
 
Taxation
 
5
 
(560
 
)
 
 
(77
 
)
 
Profit for the period
 
 
2,067
 
 
 
2,127
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
Equity shareholders of the parent company
 
 
1,976
 
 
 
2,058
 
 
Non-controlling interests
 
 
91
 
 
 
69
 
 
 
 
2,067
 
 
 
2,127
 
 
 
 
 
 
 
 
 
million
 
 
million
 
Weighted average number of shares
 
 
 
 
 
Shares in issue excluding own shares
 
 
2,442
 
 
2,505
 
Dilutive potential ordinary shares
 
 
10
 
 
12
 
 
 
2,452
 
 
2,517
 
 
 
 
 
 
 
 
pence
 
 
pence
 
Basic earnings per share
 
 
80.9
 
 
 
82.2
 
 
 
 
 
 
 
Diluted earnings per share
 
 
80.6
 
 
 
81.8
 
 
 
 
 
 
 
 
 
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
 
 
Six months ended 31 December 2018
 
 
Six months ended 31 December 2017
 
 
 
£ million
 
 
£ million
 
Other comprehensive income
 
 
 
 
 
  Items that will not be recycled subsequently to the income statement
 
 
 
 
 
Net remeasurement of post employment plans
 
 
 
 
 
-  group
 
 
183
 
 
 
(85
 
)
 
-  associates and joint ventures
 
 
1
 
 
 
5
 
 
Tax on post employment plans
 
 
(34
 
)
 
 
(6
 
)
 
 
 
150
 
 
 
(86
 
)
 
  Items that may be recycled subsequently to the income statement
 
 
 
 
 
Exchange differences on translation of foreign operations
 
 
 
 
 
-  group
 
 
265
 
 
 
(492
 
)
 
-  associates and joint ventures
 
 
43
 
 
 
33
 
 
-  non-controlling interests
 
 
42
 
 
 
(54
 
)
 
Net investment hedges
 
 
(99
 
)
 
 
85
 
 
Tax on exchange differences - group
 
 
1
 
 
 
11