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
 
25 July 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):   
 
 
Preliminary results, year ended 30 June 2019
25 July 2019

 
 
 
Delivering our strategy through strong consistent performance
 
 
 
 
 
Reported net sales (£12.9 billion) increased 5.8% with organic growth partially offset by acquisitions and disposals. Reported operating profit (£4.0 billion) increased 9.5%, driven by organic growth
 
 
 
All regions contributed to broad based organic net sales growth, up 6.1%, with organic volume up 2.3% 
 
 
 
Organic operating profit grew 9.0%, ahead of top line organic growth, driven by improved price/mix and productivity benefits from everyday cost efficiencies, partially offset by cost inflation and higher marketing investment 
 
 
 
Cash flow continued to be strong, with net cash from operating activities at £3.2 billion, up £164 million and free cash flow at £2.6 billion, up £85 million  
 
 
 
Basic eps of 130.7 pence increased by 7.4%. Pre-exceptional eps grew 10.3% to 130.8 pence, driven by higher operating profit and lower finance charges, which more than offset an increased tax charge as a result of higher profit
   
 
 
On 25 July the Board approved plans for a further return of capital up to £4.5 billion to shareholders for the period F20 to F22.
   
 

The final dividend increased 5% bringing the full year dividend to 68.57 pence per share 
 
 
See Explanatory notes for explanation and reconciliation of non-GAAP measures.

 
Ivan Menezes, Chief Executive, commenting on the results said:
 
 
"Diageo has delivered another year of strong performance. Organic volume and net sales growth was broad based across regions and categories, with new product innovation being a strong contributor. We expanded organic operating margin ahead of our guidance and increased investment behind our brands ahead of organic net sales growth.
 
 
Fiscal 19 has been another year of strong free cash flow delivery at £2.6 billion and we have returned £2.8 billion to shareholders via share buybacks. The Board has approved plans for an additional return to shareholders of up to £4.5 billion over Fiscal 20 to Fiscal 22.
 
 
Our focus on quality sustainable growth is backed by a culture of everyday efficiency that enables us to invest smartly in marketing and growth initiatives while expanding margins.
 
 
These results reflect the steady progress we are making and as we look ahead we see attractive opportunities to deliver consistent growth and create shareholder value. In the medium term I expect Diageo to maintain organic net sales growth in the mid-single digit range and to grow organic operating profit ahead of net sales in the range of 5%-7%." 
 
 
Key financial information
For the year ended 30 June 2019
 
Summary financial information
 
 
 
 
 
2019      
 
2018      
 
Organic growth 

    
Reported growth
% 

    
Volume
 
EUm
 
245.9
 
 
240.4
 
 
2
 
 
2
 
 
Net sales
 
£ million
 
12,867
 
 
12,163
 
 
6
 
 
6
 
 
Marketing
 
£ million
 
2,042
 
 
1,882
 
 
8
 
 
9
 
 
Operating profit before exceptional items
 
£ million
 
4,116
 
 
3,819
 
 
9
 
 
8
 
 
Exceptional operating items(i)
 
£ million
 
(74
 
)
 
(128
 
)
 
 
 
Operating profit
 
£ million
 
4,042
 
 
3,691
 
 
 
10
 
 
Share of associate and joint venture profit after tax
 
£ million
 
312
 
 
309
 
 
 
1
 
 
Non-operating exceptional gain(i)
 
£ million
 
144
 
 
-
 
 
 
 
Net finance charges
 
£ million
 
(263
 
)
 
(260
 
)
 
 
 
Exceptional taxation (charge)/credit(i)
 
£ million
 
(39
 
)
 
203
 
 
 
 
Tax rate including exceptional items
 
%
 
21.2
 
 
15.9
 
 
 
33
 
 
Tax rate before exceptional items
 
%
 
20.6
 
 
20.7
 
 
 
-
 
 
Profit attributable to parent company's shareholders
 
£ million
 
3,160
 
 
3,022
 
 
 
5
 
 
Basic earnings per share
 
pence
 
130.7
 
 
121.7
 
 
 
7
 
 
Earnings per share before exceptional items
 
pence
 
130.8
 
 
118.6
 
 
 
10
 
 
Recommended full year dividend
 
pence
 
68.6
 
 
65.3
 
 
 
5
 
 
 
(i)   For further details of exceptional items see Additional financial information, (c) exceptional items and Notes, 3. Exceptional items
 
Outlook for exchange 
Using exchange rates £1 = $1.25; £1 = €1.11, the exchange rate movement for the year ending 30 June 2020 is estimated to favourably impact net sales by approximately £375 million and operating profit by approximately £135 million.
 
Outlook for tax 
The tax rate before exceptional items for the year ended 30 June 2019 was 20.6% compared with 20.7% in the prior year. The year ended 30 June 2019 benefitted from one-off items which are not expected to repeat. This combined with our changing business mix is expected to result in a tax rate before exceptional items for the year ending 30 June 2020 to be in the range of 21% to 22%. For further details on taxation see Additional Financial Information (d) Taxation.
 
Share buyback programme
On 26 July 2018 a share buyback programme was approved to return up to £2.0 billion to shareholders during the year ended 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, were approved to be returned to shareholders through an increase to the share buyback programme. 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 ended 30 June 2019.
 
In the year ended 30 June 2019, 94.7 million shares were repurchased for an aggregate consideration of £2.8 billion. 
After the year end a further 0.3 million shares were purchased for an aggregate consideration of £26 million, including settlement payments for the full tranche, which were recognised as a financial liability at 30 June 2019. The shares purchased under the share buyback programmes were cancelled.
 
On 25 July 2019, the Board approved plans for a further return of capital up to £4.5 billion to shareholders for the period F20 to F22.
 
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 grew 5.8%
Organic net sales grew 6.1%
(i
 
Net sales
 
£ million
 
2018
12,163
Exchange(i)
24
Acquisitions and disposals
(57)
Volume
280
Price/mix
457
2019
12,867
 
 
(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 and favourable exchange which was partially offset by  acquisitions and disposals.
 
Organic volume growth of 2.3% and 3.8% positive price/mix delivered 6.1% organic net sales growth. All regions reported organic net sales growth. 
 
 
Operating profit (£ million)
 
Reported operating profit grew 9.5%
 
Organic operating profit grew 9.0%
 
 
 
Operating profit
£ million
2018
3,691
Exceptional operating items
54
Exchange
25
Acquisitions and disposals
(64)
Organic movement
336
2019
4,042
 
 
Reported operating profit was up 9.5% driven by organic growth, lower exceptional operating charges, and favourable exchange, partially offset by acquisitions and disposals.
 
Organic operating profit grew ahead of net sales at 9.0%.  
 
 
Operating margin (%)
 
Reported operating margin increased 107bps
Organic operating margin increased 83 bps
 
Operating margin
ppt
2018
30.3
Exceptional operating items
0.47
Exchange
0.14
Acquisitions and disposals
(0.37)
Gross margin
0.38
Marketing
(0.22)
Other operating expenses
0.67
2019
31.4
 
 
Reported operating margin increased 107bps driven by organic operating margin improvement, lower exceptional operating charges and favourable exchange partially offset by the impact from acquisitions and disposals.
 
Organic operating margin improved 83bps driven by improved price/mix and productivity benefits from everyday cost efficiencies, partially offset by cost inflation and higher marketing investment. 
 
 
 
Basic earnings per share (pence)
 
Basic eps increased 7.4% from 121.7 pence to 130.7 pence
Eps before exceptional items increased 10.3% from 118.6 pence to 130.8 pence
 
(
 
Basic earnings per share
 
pence
 
2018
121.7
Exceptional items after tax
(3.2)
Exchange on operating profit
1.0 
Acquisitions and disposals
(2.0)
Organic operating profit growth(i)
13.5
Associates and joint ventures
0.1
Net finance charges(ii)
2.5
Tax
(3.3)
Share buyback
1.6
Non-controlling interests
(1.2)
2019
130.7
 
(i)  Excluding exchange
(ii) Net finance charges in relation to share buyback and acquisitions and disposals are reflected in the respective categories.
 
Eps before exceptional items increased 12.2 pence as organic operating profit growth and lower finance charges more than offset the higher tax charge and impact from acquisitions and disposals. 
 
Basic eps increased 9.0 pence impacted by an increase in net exceptional charges.
 
 
Free cash flow (£ million)
 
Net cash from operating activities(i) was £3,248 million
Free cash flow was £2,608 million
 
Free cash flow
£ million
2018
2,523
Exchange(ii)
25
Operating profit(iii)
248
Working capital(iv)
(63)
Capex
(95)
Tax
(54)
Interest
(1)
Other(v)
25
2019
2,608
 
 
(i)     Net cash from operating activities excludes net capex and movements in loans and other investments (2019 - £(640) million; 2018 - £(561) 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 stock. 
(v)    Other items include post employment payments, dividends received from associates and joint ventures, and movements in loans and other investments.

 
Net cash from operating activities was £3.2 billion, an increase of £164 million compared to last year. Free cash flow continued to be strong at £2.6 billion, an increase of £85 million. This was largely driven by operating profit growth and favourable exchange movement which more than offset the reduced working capital gains and increased investment in maturing stock, increased capex and higher tax payments. 
 
Return on average invested capital (%)(i)
 
ROIC improved 80bps
 
 
Return on average invested capital
ppt
2018
14.3
Exchange
0.17
Acquisitions and disposals
(0.31)
Organic operating profit growth
1.51
Associates and joint ventures
(0.09)
Tax
(0.15)
Other
(0.33)
2019
15.1
 
(i)   ROIC calculation excludes exceptional income statement items.
 
ROIC increased 80bps largely driven by organic operating profit growth which was partially offset by the impact of acquisitions and disposals, higher tax charges and other movements, primarily net capex and maturing stock.  
 
 
 
Reported growth by region
 
 
 
 
Volume
Net sales
Marketing
Operating profit(i)
 
%     
EUm     
%     
£ million     
%     
£ million     
%     
£ million 
North America
2
 
1.2
 
8
 
344
 
15
 
100
 
4
 
66
 
Europe and Turkey
(2
)
(0.9
)
-
 
7
 
3
 
16
 
(1
)
(14
)
Africa
1
 
0.4
 
7
 
106
 
10
 
16
 
44
 
84
 
Latin America and Caribbean
1
 
0.2
 
6
 
61
 
3
 
5
 
19
 
57
 
Asia Pacific
5
 
4.6
 
7
 
185
 
6
 
24
 
24
 
135
 
    Corporate(ii)
-

-

2

1
 
(25
)
(1
)
(20
)
(31
)
Diageo
2
 
5.5
 
6
 
704
 
9
 
160
 
8
 
297
 
 
 
 
Organic growth by region
 
 
 
 
Volume
Net sales
Marketing
Operating profit(i)
 
%      
EUm      
%      
£ million      
%      
£ million      
%      
£ million  
North America
2
 
1.1
 
5
 
216
 
11
 
75
 
3
 
52
 
Europe and Turkey
(2
)
(0.9
)
4
 
104
 
6
 
26
 
2
 
22
 
Africa
1
 
0.4
 
7
 
100
 
3
 
5
 
50
 
91
 
Latin America and Caribbean
1
 
0.2
 
9
 
90
 
6
 
12
 
19
 
59
 
Asia Pacific
5
 
4.7
 
9
 
226
 
7
 
27
 
26
 
143
 
Corporate(ii)
-
 
-
 
2
 
1
 
(25
)
(1
)
(20
)
(31
)
Diageo

 
5.5
 
6
 
737
 
8
 
144
 
9
 
336
 
 
(i) Before operating exceptional items.
 
(ii) Increase in Corporate driven by productivity associated charges.
 
 
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
For the year ended 30 June 2019
 
North America
 
 
North America delivered net sales growth of 5%, with growth across all three key markets. The disposal of a portfolio of 19 brands to Sazerac resulted in an estimated 40bps improvement in organic net sales growth. In US Spirits, net sales increased 5%. Crown Royal net sales increased by 6% and the brand gained share, driven by strengthened marketing investment fuelling the growth of Crown Royal Regal Apple and by the Crown Royal Peach limited time offer. Bulleit net sales were up 8% and it continued to gain share in US whiskey.  Scotch grew net sales by 7% and gained share with strong innovation performance recruiting new consumers into scotch. Vodka net sales were flat, an improvement over the prior year, reflecting growth in Ketel One and Smirnoff and decline in Cîroc. Ketel One net sales grew by 10% and gained share in the category, driven by Ketel One Botanical with improvement in core Ketel One vodka performance. Smirnoff net sales grew by 2% due to stabilisation of the base business and the launch of Smirnoff Zero Sugar Infusions. Captain Morgan net sales declined 5%. 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 10%, largely driven by growth in ready to drink as a result of successful prior year innovation launches. Beer net sales grew by 2%, improving over prior year and gaining share. Net sales in Canada increased 5% with broad based growth, including strong ready to drink performance. North America operating margin declined 103bps, mainly driven by up-weighted marketing investment behind US Spirits, with some impact from market mix shift and higher commodity and logistics costs partially offset by overhead efficiencies.
 
Key financials £ million:
 
 
2018       

FX      
 
Acquisitions      
and      
disposals      
 
Organic movement      
 
2019       
 
Reported movement   
%   
 
Net sales
 
4,116
 
 
176
 
 
(48
 
)
 
216
 
 
4,460
 
 
8
 
 
Marketing
 
662
 
 
24
 
 
1
 
 
75
 
 
762
 
 
15
 
 
Operating profit
 
1,882
 
 
74
 
 
(60
 
)
 
52
 
 
1,948
 
 
4
 
 
 
 
Markets:
 
 
 
 
 
 
Global giants, local stars and reserve(i):
 
 
Organic    
volume    
movement    
Reported    
volume    
movement    
Organic     
net sales     
movement     
Reported     
net sales     
movement     
 
 
Organic    
volume    
movement(iii)      
Organic     
net sales     
movement     
Reported  
net sales  
movement  
 
%     
 
%     
 
%     
 
%     
 
 
 
%     
 
%     
 
%  
 
North America
 
2
 
 
2
 
 
5
 
 
8
 
 
 
Crown Royal
 
6
 
 
6
 
 
10
 
 
 
 
 
 
 
 
Smirnoff
 
2
 
 
3
 
 
7
 
 
US Spirits(ii)
 
2
 
 
(2
 
)
 
5
 
 
8
 
 
 
Captain Morgan
 
(3
 
)
 
(4
 
)
 
-
 
 
DBC USA
 
8
 
 
8
 
 
10
 
 
15
 
 
 
Johnnie Walker
 
1
 
 
5
 
 
9
 
 
Canada
 
3
 
 
3
 
 
5
 
 
4
 
 
 
Ketel One(iv)
 
10
 
 
10
 
 
15
 
 
 
 
 
 
 
 
Cîroc vodka
 
(10
 
)
 
(10
 
)
 
(6
 
)
 
Spirits
 
2
 
 
2
 
 
5
 
 
8
 
 
 
Baileys
 
-
 
 
2
 
 
6
 
 
Beer
 
(4
 
)
 
(4
 
)
 
1
 
 
5
 
 
 
Guinness
 
(3
 
)
 
2
 
 
6
 
 
Ready to drink
18
 
 
17
 
 
18
 
 
21
 
 
 
Tanqueray
 
2
 
 
1
 
 
5
 
 
 
 
 
 
 
 
Don Julio
 
20
 
 
26
 
 
32
 
 
 
 
 
 
 
 
Bulleit
 
11
 
 
8
 
 
13
 
 
 
 
 
 
 
 
Buchanan's
 
8
 
 
4
 
 
9
 
 
 
(i)    Spirits brands excluding ready to drink.
(ii)   Reported US Spirits volume growth was impacted by acquisitions and disposals.
(iii)  Organic equals reported volume movement.
(iv)  Ketel One includes Ketel One vodka and Ketel One Botanical.
 
●    Net sales in US Spirits were up 5%, broadly in line with depletions. Crown Royal grew net sales by 6% and gained share in its category, driven by continued growth of Crown Royal Regal Apple and Crown Royal Vanilla underpinned by strong marketing investment and the Crown Royal Peach and Crown Royal Salted Caramel limited time offers. In scotch, Johnnie Walker and Buchanan's gained share. Johnnie Walker net sales increased 6% with the successful launch of "White Walker by Johnnie Walker" inspired by the TV series Game of Thrones, which recruited new consumers into scotch. In vodka, net sales were flat, an improvement on the prior year's decline of 3%, despite continued weakness in Cîroc. Ketel One net sales were up 10%, benefitting from the success of Ketel One Botanical. Smirnoff returned to growth, up 2%, with strong marketing support reflected in the stabilisation of the base business and strengthened brand equity and with growth fuelled by the launch of Smirnoff Zero Sugar Infusions in May. Captain Morgan net sales declined by 5% in a category that is also in decline. Baileys net sales grew by 3% and gained category share as it continued its year-round focus on Baileys as an everyday treat. In tequila, Don Julio and Casamigos had strong double digit growth and gained share in the tequila category with Don Julio significantly up-weighting media investment to drive awareness and Casamigos focusing on public relations, social media and targeted events.
●    DBC USA net sales increased 10%, driven by ready to drink growth of 18% as Smirnoff Spiked Seltzer and Smirnoff Ice Smash success continued. In beer, net sales were up 2% with Guinness up 3%. The opening of the Guinness Open Gate Brewery and Barrel House in Maryland and expanding at-home consumption occasions supported Guinness growth.
●     Net sales in Canada grew 5%, driven by growth in spirits and ready to drink. Spirits net sales were up 3% with broad based growth across all categories, including a strong performance from "White Walker by Johnnie Walker". Ready to drink benefitted from innovation, particularly the Smirnoff Ice Berry Blast ready to drink. 
●     Marketing grew 11%. Up-weighted investment coupled with the use of marketing effectiveness analytic tools to help make better investment decisions continued to strengthen brand equity and deliver sustainable growth.
 
 
Europe and Turkey
 
 
 
Europe and Turkey delivered 4% net sales growth, reflecting another year of consistent performance in Europe where net sales were up 3% with double digit growth in Turkey. Europe growth was driven by Continental Europe, Great Britain and Ireland. Strong growth in gin continued with Tanqueray and Gordon's growing double digit. Western Europe continued to gain market share in gin. Both Gordon's and Tanqueray benefitted from strong growth across their core and innovation variants. Beer was up 1%. Lager net sales grew 5% driven by Rockshore in Ireland, while Guinness Draught grew 1%. Scotch net sales were flat as growth in Johnnie Walker and scotch malts was largely offset by the weaker performance of J&B. Baileys was up 2% largely driven by the launch of Baileys Strawberries & Cream in Continental Europe. Smirnoff net sales declined 2% driven by Great Britain and Continental Europe, partially offset by growth in Ireland. Tequila grew double digit with growth across all markets. Ready to drink grew 17% driven by the Gordon's premix range. In Turkey, net sales were up 11% due to inflation and excise duty led price increases. Operating margin declined 49bps as positive price/mix and productivity savings were offset by up-weighted marketing investment, as well as inflationary cost pressure, particularly in Turkey.
 
Key financials £ million
 
 
2018      
 
FX     
 
Acquisitions     
and     
disposals     
 
Organic      
movement      
 
2019      
 
Reported movement  
%  
 
Net sales
 
2,932
 
 
(95
 
)
 
(2
 
)
 
104
 
 
2,939
 
 
-
 
 
Marketing
 
474
 
 
(10
 
)
 
-
 
 
26
 
 
490
 
 
3
 
 
Operating profit before exceptional items
 
1,028
 
 
(35
 
)
 
(1
 
)
 
22
 
 
1,014
 
 
(1
 
)
 
Exceptional operating items(i)
 
-
 
 
 
 
 
(18
 
)
 
 
Operating profit
 
1,028
 
 
 
 
 
996
 
 
(3
 
)
 
 
(i)  For further details on exceptional operating items see Additional Financial Information, Exceptional items and Notes, 3. Exceptional items.
 
Markets:
 
 
 
 
 
 
Global giants and local stars(i):
 
 
Organic    
volume    
movement    
 
Reported    
volume    
movement    
 
Organic     
net sales     
movement     
 
Reported     
net sales     
movement     
 
 
 
Organic     
volume     
movement(ii)       
 
Organic    
net sales    
movement    
 
Reported  
net sales  
movement  
 
 
%    
 
%    
 
%     
 
%     
 
 
 
%     
 
%    
 
%  
 
Europe and Turkey
 
 
 
 
 
 
Guinness
 
1
 
 
1
 
 
1
 
 
(2
 
)
 
(2
 
)
 
4
 
 
-
 
 
 
Johnnie Walker
 
(2
 
)
 
3
 
 
1
 
 
 
 
 
 
 
 
Smirnoff
 
(4
 
)
 
(1
 
)
 
(1
 
)
 
Europe
 
-
 
 
-
 
 
3
 
 
2
 
 
 
Baileys
 
(2
 
)
 
3
 
 
3
 
 
Turkey
 
(13
 
)
 
(13
 
)
 
11
 
 
(20
 
)
 
 
Yenì Raki
 
(19
 
)
 
6
 
 
(24
 
)
 
 
 
 
 
 
 
Captain Morgan
 
1
 
 
-
 
 
(2
 
)
 
Spirits
 
(2
 
)
 
(2
 
)
 
3
 
 
(1
 
)
 
 
J&B
 
(8
 
)
 
(8
 
)
 
(10
 
)
 
Beer
 
1
 
 
1
 
 
1
 
 
-
 
 
 
Tanqueray
 
14
 
 
21
 
 
21
 
 
Ready to drink
 
13
 
 
13
 
 
16
 
 
15
 
 
 
 
 
 
 
 
(i)   Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement.
 
 
In Europe, net sales were up 3%: 
 
 
In Great Britain, net sales grew 4%, with Diageo gaining share across beer and spirits. Gordon's and Tanqueray both delivered strong double digit growth, both benefitting from strong growth of their innovation variants. Ready to drink grew 17% driven by the Gordon's premix range. Guinness net sales grew 4%, driven by a strong performance for Guinness Draught and the continued growth of Hop House 13 Lager. Across Baileys, Smirnoff and Captain Morgan supply chain actions as well as commercial negotiations following recent pricing decisions have resulted in net sales decline.  
 
 
Ireland grew net sales 3%. Beer net sales were flat. Lager net sales grew 4% driven by strong growth in Rockshore. Guinness net sales declined 2% impacted by difficult competitive conditions. In spirits, net sales grew double digit largely driven by Smirnoff, Baileys and Gordon's. 
 
 
In Continental Europe, net sales were up 3%: 
 
 
 
Iberia net sales grew 1%. Growth was driven by strong performance in Baileys and gin with growth across both Tanqueray and Gordon's. Scotch declined 3% as growth in Cardhu and Johnnie Walker was offset by declines in J&B. In Spain, market share in scotch was broadly flat, as the category continued to decline. 
 
 
 
In Central Europe, net sales grew 4% driven by the launch of Baileys Strawberries & Cream and double digit growth in gin which more than offset the impact of pricing actions in Germany. 
 
 
 
In Northern Europe net sales were up 9% driven by growth across both Benelux and the Nordics partially driven by net revenue management initiatives. 
 
 
 
In the Mediterranean Hub, net sales were down by 6% driven by lapping strong comparable performance in Italy in the prior year and a continuing tough economic environment in Greece. 
 
 
 
Europe Partner Markets grew net sales 6% driven by strong scotch performance and continued growth in Guinness and gin. 
 
 
Russia net sales declined 3% driven by a volatile external environment and lapping strong comparables in the prior year. 
 
 
France net sales grew 1%. Double digit net sales growth in Captain Morgan was partially offset by a decline in J&B.

In Turkey, net sales grew 11% despite volume decline of 13%, reflecting the impact of price increases, which were taken in response to increases in excise duties and inflation. Growth was largely driven by Yenì Raki which grew net sales by 7%, wine and scotch which grew double digit, led by strong growth in Johnnie Walker.
Marketing investment increased 6%, ahead of net sales, largely driven by increased investment in beer and gin. Beer marketing investment growth was primarily driven by the Six Nations rugby sponsorship agreement supporting the Guinness brand. Up-weighted investment in gin was across both Gordon's and Tanqueray. 
 
 
Africa
 
 
Africa delivered 7% net sales growth, with growth across East Africa, Africa Regional Markets and South Africa partially offset by a decline in Nigeria. In East Africa and Africa Regional Markets net sales grew 13% and 8%, respectively, driven by growth across both beer and spirits. East Africa partially benefitted from lapping prior year weakness in the first half. Net sales grew 6% in South Africa driven by growth in spirits. Nigeria net sales declined by 7% driven by the continued tough economic and competitive environment in the lager segment. Across Africa, beer net sales were up 5% driven by double digit growth in Senator Keg, Serengeti Lite, and Malta Guinness, partially offset by declines in Satzenbrau. Spirits delivered strong net sales growth driven by mainstream spirits and scotch across all key markets as well as strong growth of Tanqueray in South Africa. Scotch net sales were up 8% driven by Johnnie Walker, up 10%, partially as a result of a strong launch of "White Walker by Johnnie Walker" in South Africa. Operating margin improved by 494bps driven by improved price/mix and the continued benefit from productivity initiatives more than offsetting cost inflation.
 
 
Key financials £ million:
 
 
2018      
 
FX      
 
Reclassification(i)        
 
Acquisitions     
and     
disposals     
 
Organic movement      
 
2019      
 
Reported movement   
%   
 
Net sales
 
1,491
 
 
8
 
 
-
 
 
(2
 
)
 
100
 
 
1,597
 
 
7
 
 
Marketing
 
158
 
 
1
 
 
10
 
 
-
 
 
5
 
 
174
 
 
10
 
 
Operating profit before exceptional items
 
191
 
 
(6
 
)
 
-
 
 
(1
 
)
 
91
 
 
275
 
 
44
 
 
Exceptional operating items(ii)
 
(128
 
)
 
 
 
 
 
-
 
 
 
Operating profit
 
63
 
 
 
 
 
 
275
 
 
337  
 
 
(i)   Reclassification comprises a reallocation of costs from overheads to marketing.
(ii)  For further details on exceptional operating items see Additional financial information, Exceptional items and Notes, 3. Exceptional items.
 
 
Markets:
 
 
 
 
 
 
Global giants and local stars(i):
 
 
Organic     
volume     
movement     
 
Reported     
volume     
movement     
 
Organic     
net sales     
movement     
 
Reported     
net sales     
movement     
 
 
 
Organic    
volume    
movement(iii)      
 
Organic     
net sales     
movement     
 
Reported  
net sales  
movement  
 
 
%     
 
%     
 
%     
 
%     
 
 
 
%     
 
%     
 
%  
 
Africa
 
1
 
 
1
 
 
7
 
 
7
 
 
 
Guinness
 
(1
 
)
 
2
 
 
3
 
 
 
 
 
 
 
 
Johnnie Walker
 
4
 
 
10
 
 
9
 
 
East Africa
 
12
 
 
11
 
 
13
 
 
18
 
 
 
Smirnoff
 
-
 
 
12
 
 
9
 
 
Africa Regional Markets(ii)
 
(3
 
)
 
3
 
 
8
 
 
9
 
 
 
 
 
 
 
Nigeria
 
(10
 
)
 
(10
 
)
 
(7
 
)
 
(3
 
)
 
 
Other beer:
 
South Africa(ii)
 
(2
 
)
 
(10
 
)
 
6
 
 
(6
 
)
 
 
 
 
 
 
 
 
 
 
 
 
Malta Guinness
 
8
 
 
15
 
 
13
 
 
Spirits
 
5
 
 
5
 
 
13
 
 
10
 
 
 
Tusker
 
(5
 
)
 
1
 
 
6
 
 
Beer
 
1
 
 
1
 
 
5
 
 
8
 
 
 
Senator
 
21
 
 
22
 
 
28
 
 
Ready to drink
 
(3
 
)
 
(3
 
)
 
4
 
 
2
 
 
 
Serengeti
 
40
 
 
46
 
 
49
 
 
 
(i)    Spirits brands excluding ready to drink.
(ii)   In the year ended 30 June 2019 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.
(iii)  Organic equals reported volume movement.
 
 
In East Africa, net sales grew by 13%. Kenya continued to grow strongly driven by double digit growth in beer and mainstream spirits as well as partially benefitting from lapping prior year weakness in the first half as a result of the 2017 presidential election. Tanzania continued to grow double digit. Beer net sales grew 13% led by continued strong growth in Serengeti Lite in Tanzania and double digit growth of Senator Keg in Kenya. Guinness net sales grew by 4%.
 
In Africa Regional Markets, net sales increased by 8% with double digit growth in Ghana and Angola and a return to growth in Cameroon as it lapped prior year challenges in the distributor network. Beer grew 6% driven by strong performance in Malta Guinness. Scotch also returned to growth driven by net revenue management actions. 
 
South Africa net sales returned to growth of 6% driven by strong spirits performance in Tanqueray, double digit growth in Smirnoff 1818 and Captain Morgan and the launch of "White Walker by Johnnie Walker". 
 
In Nigeria, net sales declined by 7% driven by Satzenbrau, as a result of a tough economic and competitive environment impacting the lager segment. Net sales grew in Malta Guinness, Guinness and spirits. 
 
Marketing investment increased by 3% largely driven by up-weighted investment in Tusker marketing activities and media campaigns, the relaunch of Guinness Foreign Extra Stout, an evolution of Guinness's successful football campaign across Africa, led by Guinness brand ambassador Rio Ferdinand, and the continuation of Serengeti's sponsorship of the Tanzanian national football team.  
 
 
Latin America and Caribbean
 
 
 
Latin America and Caribbean delivered 9% growth in net sales with strong performance in Brazil, Mexico, Colombia and CCA. Net sales in Brazil grew 11% largely driven by gin, and partially benefitting from a one-off incentive related credit. Mexico grew 8% led by double digit growth in tequila. Colombia grew 19% largely driven by scotch. CCA benefitted from lapping the impact of last year's hurricanes. Growth in the region was broad based across key categories. Scotch grew 7% with continued solid performance of Johnnie Walker and primary scotch growing 5% and 14% respectively. Buchanan's was up 8% and Old Parr returned to growth as both brands benefitted from lapping last year's tax changes in Colombia. Don Julio delivered double digit growth led by Mexico. Gin grew double digit driven by the strong growth of Tanqueray in Brazil. Operating margin for the region increased 288bps benefitting from improved price/mix, productivity led efficiencies and a one-off tax benefit in other income in Brazil.
 
Key financials £ million:
 
 
2018      
 
FX     
 
Acquisitions      
and      
disposals      
 
Organic movement       
 
2019       
 
Reported movement   
%   
 
Net sales
 
1,069
 
 
(29
 
)
 
-
 
 
90
 
 
1,130
 
 
6
 
 
Marketing
 
196
 
 
(7
 
)
 
-
 
 
12
 
 
201
 
 
3
 
 
Operating profit
 
308
 
 
(2
 
)
 
-
 
 
59
 
 
365
 
 
19
 
 
 
 
Markets:
 
 
 
 
 
 
Global giants and local stars(i):
 
 
Organic     
volume     
movement     
 
Reported     
volume     
movement     
 
Organic     
net sales     
movement     
 
Reported     
net sales     
movement     
 
 
 
Organic      
volume      
movement(ii)        
 
Organic     
net sales     
movement     
 
Reported      
net sales      
movement      
 
 
%      
 
%     
 
%     
 
%     
 
 
 
%      
 
%     
 
%      
 
Latin America and Caribbean
 
 
 
 
 
 
Johnnie Walker
 
3
 
 
5
 
 
3
 
 
1
 
 
1
 
 
9
 
 
6
 
 
 
Buchanan's
 
5
 
 
8
 
 
7
 
 
 
 
 
 
 
 
Smirnoff
 
11
 
 
19
 
 
10
 
 
PUB
 
(1
 
)
 
(1
 
)
 
6
 
 
(3
 
)
 
 
Old Parr
 
5
 
 
3
 
 
1
 
 
Mexico
 
4
 
 
4
 
 
8
 
 
8
 
 
 
Baileys
 
3
 
 
17
 
 
13
 
 
CCA
 
5
 
 
5
 
 
13
 
 
14
 
 
 
Ypióca
 
(7
 
)
 
(1
 
)
 
(11
 
)
 
Andean
 
(16
 
)
 
(15
 
)
 
19
 
 
14
 
 
 
Black & White
 
8
 
 
5
 
 
-
 
 
PEBAC
 
13
 
 
13
 
 
6
 
 
3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Spirits
 
1
 
 
1
 
 
9
 
 
6
 
 
 
 
 
 
 
Beer
 
2
 
 
2
 
 
(4
 
)
 
(7
 
)
 
 
 
 
 
 
Ready to drink
 
(4
 
)
 
(4
 
)
 
8
 
 
4
 
 
 
 
 
 
 
 
(i)   Spirits brands excluding ready to drink.
(ii) Organic equals reported volume movement.
 
 
In PUB (Paraguay, Uruguay and Brazil), net sales grew 6%. Brazil delivered 11% growth driven by strong growth in gin, and partially benefitting from a one-off incentive related credit. Tanqueray drove the growth in gin supported by scaled up commercial activations in conjunction with media support. Scotch net sales grew 6% led by White Horse. Black & White declined as it was impacted by a state tax change in Brazil. 
In Mexico, net sales increased 8%. Growth was broad based but led by Don Julio which continued to gain share in the tequila category, reflecting strong brand momentum and well-executed marketing campaigns and commercial platforms. Scotch grew 4% with Johnnie Walker up 7% and Black & White up 4% supported by an increased focus on brand availability through trade activations. Baileys grew strong double digit driven by distribution expansion, new brand communication focusing on Baileys' indulgent treat positioning and the launch of new flavours. 
 
In CCA (Caribbean and Central America), net sales increased 13% as it benefitted from lapping the impact of the hurricanes in the prior year. 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. Smirnoff ready to drink grew 19% driven by innovations with Guarana and Green Apple flavours. 
Andean (Colombia and Venezuela) net sales increased 19% driven by Colombia, which partially benefitted from lapping the impact of tax changes last year. Scotch delivered double digit net sales growth. Buchanan's strong performance was supported by occasion driven consumer activations with local media campaigns. Black & White benefitted from route to consumer expansion and recruiting new consumers from local spirits and beer. Johnnie Walker grew double digit partially driven by the "White Walker by Johnnie Walker" innovation. Venezuela volume remained in decline as economic conditions continued to deteriorate. 
 
PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) delivered 6% net sales growth, driven by Ecuador and Chile partially offset by Bolivia and Peru, which were impacted by tax changes. Growth was driven by scotch with a strong contribution from Johnnie Walker Red Label and "White Walker by Johnnie Walker". 
 
Marketing investment increased 6% driven by the key campaigns including Johnnie Walker "We are all Human", Buchanan's "Vivamos Grandes Momentos", Old Parr "Cambia el Guión" and Tanqueray "Tanqueray Mixed Gin Bar". 
 
 
Asia Pacific
 
Asia Pacific delivered 9% growth in net sales with strong growth across the region except North Asia. Greater China grew 19% driven by strong performance in both Chinese white spirits and scotch. Net sales in India grew 8% driven by IMFL whisky and scotch. Travel Retail Asia and Middle East grew 13% mostly from Johnnie Walker. South East Asia grew 8% driven by Johnnie Walker and Guinness. Scotch net sales were up 9% across the region led by strong performance in Johnnie Walker, which benefitted from the successful launch of the "White Walker by Johnnie Walker" innovation and scotch malts, which more than offset the net sales decline of Windsor in Korea. Gin grew double digit largely driven by strong growth in Australia. Net sales of Reserve brands were up 19% largely driven by Chinese white spirits and Johnnie Walker super deluxe variants. Operating margin increased 341bps driven by positive price/mix and productivity led savings. 
 
Key financials £ million:
 
 
2018
 
FX 
 
Acquisitions 
and 
disposals 
 
Organic movement      
 
2019       
 
Reported movement   
%   
 
Net sales
 
2,503
 
(36)
 
(5)
 
226
 
 
2,688
 
 
7
 
 
Marketing
 
388
 
(3)
 
- 
27
 
 
412
 
 
6
 
 
Operating profit before exceptional items
 
568
 
(6)
 
(2)
 
143
 
 
703
 
 
24
 
 
Exceptional operating items(i)
 
- 
 
 
 
(35)      
 
 
Operating profit
 
568
 
 
 
 
668
 
 
18
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(i)  For further details on exceptional operating items see Additional financial information, Exceptional items and Notes, 3. Exceptional items.
 
Markets:
 
 
 
 
 
 
Global giants and local stars(i):
 
 
Organic volume movement(i)       
 
Reported volume movement     
 
Organic net sales movement     
 
Reported net sales movement     
 
 
 
Organic volume movement(ii)       
 
Organic net sales movement     
 
Reported net sales movement  
 
 
%     
 
%     
 
%     
 
%     
 
 
 
%     
 
%     
 
%  
 
Asia Pacific
 
5
 
 
5
 
 
9
 
 
7
 
 
 
Johnnie Walker
 
6
 
 
11
 
 
13
 
 
 
 
 
 
 
 
McDowell's
 
7
 
 
9
 
 
5
 
 
India
 
5
 
 
5
 
 
8
 
 
4
 
 
 
Windsor
 
(1
 
)
 
(16
 
)
 
(15
 
)
 
Greater China
 
11
 
 
11
 
 
19
 
 
19
 
 
 
Smirnoff
 
(4
 
)
 
2
 
 
1
 
 
Australia
 
3
 
 
3
 
 
6
 
 
2
 
 
 
Guinness
 
1
 
 
5
 
 
(1
 
)
 
South East Asia
 
2
 
 
2
 
 
8
 
 
9
 
 
 
Bundaberg
 
(4
 
)
 
(1
 
)
 
(5
 
)
 
North Asia
 
12
 
 
11
 
 
(2
 
)
 
-
 
 
 
Shui Jing Fang(iii)
 
16
 
 
23
 
 
22
 
 
Travel Retail Asia and Middle East
 
4
 
 
9
 
 
13
 
 
15
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Spirits
 
5
 
 
5
 
 
10
 
 
8
 
 
 
 
 
 
 
 Beer
 
1
 
 
1
 
 
5
 
 
(2
 
)
 
 
 
 
 
 
Ready to drink
 
3
 
 
3
 
 
6
 
 
6
 
 
 
 
 
 
 
 
(i)   Spirits brands excluding ready to drink.
(ii)  Organic equals reported volume movement except for Johnnie Walker 7% largely due to the reallocation of the results of Travel Retail.
(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 prior comparable period. Reported volume was up 17%.
 
 
In India net sales increased 8% with growth from the "Prestige and Above" segment up 12%, led by 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 good growth in Royal Challenge and Signature. Vodka net sales were up 5%, supported by Smirnoff consumer activation. Net sales in the popular brands segment increased 1%. 
 
In Greater China net sales increased 19%, with double digit growth in both Chinese white spirits and scotch. Chinese white spirits grew 23% partly driven by route to consumer expansion. Scotch net sales increased 13% with continued growth in scotch malts and Johnnie Walker super deluxe in mainland China and a return to growth from Johnnie Walker in Taiwan. 
 
Net sales in Australia grew 6%, driven by strong performance in the ready to drink and gin portfolio. Ready to drink net sales increased 7% fuelled by innovation geared towards more premium products such as Gordon's Premium Pink Gin & Soda and Tanqueray & Tonic. Gin grew double digit as the fastest growing spirit in Australia supported by innovation from Gordon's Pink and House of Tanqueray. Bundaberg net sales stabilised on the back of the "Unmistakably Ours" campaign. 
 
In South East Asia, net sales increased 8% driven by growth across all key countries except Thailand. Scotch was the main growth driver with net sales growth of 6%, led by "White Walker by Johnnie Walker" and Johnnie Walker super deluxe. Guinness grew 11% driven by solid performance in Indonesia supported by focus on modern on-trade recruitment and by route to consumer expansion of Guinness Draught in Singapore. 
 
In North Asia, net sales declined 2% with growth in Japan being offset by continued weakness in Korea. In Korea net sales declined 9% due to a continued weak Windsor performance, as a result of the contraction of the scotch category. Japan net sales grew 10% driven by primary scotch, Johnnie Walker and the successful relaunch of the Guinness Draught in Can. 
 
Travel Retail Asia and Middle East net sales grew 13% driven by successful launches within the Johnnie Walker portfolio, including "White Walker by Johnnie Walker" and Johnnie Walker Blue Label innovation. 
 
Marketing investment increased 7% driven by increased investment in Chinese white spirits, Johnnie Walker and scotch malts in Greater China and a new culture leading campaign "#ChallengeAccepted" for Royal Challenge in India. 
 
 
CATEGORY AND BRAND REVIEW
 
For the year ended 30 June 2019
 
 
Key categories:
 
 
Organic volume movement(iii)        
%      
 
Organic net sales movement      
%      
 
Reported net sales movement   
%   
 
Spirits(i)
 
3
 
 
7
 
 
6
 
 
Scotch
 
2
 
 
6
 
 
6
 
 
Vodka(ii)(iv)
 
2
 
 
2
 
 
4
 
 
US whiskey
 
2
 
 
4
 
 
9
 
 
Canadian whisky
 
6
 
 
6
 
 
8
 
 
Rum(ii)
 
(3
 
)
 
(2
 
)
 
(3
 
)
 
Indian-Made Foreign Liquor (IMFL) whisky
 
6
 
 
8
 
 
3
 
 
Liqueurs
 
1
 
 
4
 
 
4
 
 
Gin(ii)
 
17
 
 
22
 
 
23
 
 
Tequila
 
19
 
 
29
 
 
37
 
 
Beer
 
1
 
 
3
 
 
4
 
 
Ready to drink
 
7
 
 
12
 
 
12
 
 
 
(i)   Spirits brands excluding ready to drink.
(ii)  Vodka, rum, gin including IMFL brands.
(iii) Organic equals reported volume movement except for Canadian whisky 5%, gin 16%, and tequila 21%, which were impacted by acquisitions and disposals.
(iv) Vodka includes Ketel One Botanical. 

 
Scotch represents 25% of Diageo's net sales and was up 6% with broad based growth across all regions except Europe. Scotch growth was driven by Johnnie Walker, which delivered a strong performance with net sales up 7%, benefitting from the successful launch of "White Walker by Johnnie Walker" inspired by the TV series Game of Thrones. Primary scotch brands grew 9% largely driven by Black & White in Asia Pacific and White Horse in Latin America and Caribbean and Asia Pacific. Buchanan's grew 8% in Latin America and Caribbean and 4% in North America. Scotch malts were up 12% with growth coming from Asia Pacific, North America and Europe benefitting from the launch of the "Game of Thrones Single Malt Scotch Whisky Collection". Old Parr returned to growth this year, as the brand lapped tax changes in Colombia. J&B continued to be under pressure in Europe led by the challenged scotch category in Iberia. Scotch continued to decline in Korea driven by declines in Windsor. 
 
Vodka represents 11% of Diageo's net sales and returned to growth with net sales up 2% and growth across all the regions except Europe. Vodka growth was driven by Smirnoff and Ketel One partially offset by a decline in Cîroc vodka. Overall, Smirnoff grew 3%, with net sales up 2% in US Spirits and 4% outside of the US, where performance was largely driven by double digit growth in Brazil and South Africa. Ketel One grew net sales by 10%, with US Spirits being the largest contributor to growth, benefitting from the success of Ketel One Botanical. The decline in Cîroc vodka was driven by US Spirits. 
 
US whiskey represents 2% of Diageo's net sales and grew 4%. Performance continued to be driven by good growth in Bulleit in US Spirits. 
 
Canadian whisky represents 7% of Diageo's net sales and grew 6%. Solid growth of Crown Royal in US Spirits was driven by strengthened marketing investment fuelling the growth of Crown Royal Regal Apple and by the Crown Royal Peach limited time offer. The brand also grew share within its category. 
 
Rum represents 6% of Diageo's net sales and declined 2% largely driven by Captain Morgan decline in US Spirits, in a category that is also in decline. 
 
IMFL whisky represents 5% of Diageo's net sales and grew 8% driven by the strong performance of the McDowell's trademark, Signature and Royal Challenge. 
 
Liqueurs represent 5% of Diageo's net sales and grew 4% with growth in all regions. Baileys was up 4% led by Europe, US Spirits and Mexico, with performance driven by continued focus on reminding consumers of Baileys' indulgent treat year-round positioning. 
 
Gin represents 4% of Diageo's net sales and grew 22% with double digit growth across all regions except North America. Strong growth in gin continued with Tanqueray and Gordon's growing double digit with both Gordon's and Tanqueray benefitting from strong growth across their core and innovation variants. We continued to gain share in the gin category in Western Europe. 
 
Tequila represents 4% 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 16% of Diageo's net sales and grew 3%. In Africa beer grew 5%, largely driven by Senator Keg in Kenya and Serengeti Lite in Tanzania partially offset by decline in Satzenbrau in Nigeria. Guinness grew 2% with growth largely driven by Guinness Foreign Extra Stout, as well as Guinness Draught and the continued growth of Hop House 13 Lager in Europe. In Ireland lager net sales grew 4% driven by strong growth in Rockshore. 
 
Ready to drink represents 6% of Diageo's net sales and grew 12% primarily driven by North America and Europe. 
 
 
Global giants, local stars and reserve(i):
 
 
Organic volume movement(ii)        
%      
 
Organic net sales movement      
%      
 
Reported net sales movement  
%  
 
Global giants
 
 
 
 
Johnnie Walker
 
2
 
 
7
 
 
7
 
 
Smirnoff
 
-
 
 
3
 
 
5
 
 
Baileys
 
-
 
 
4
 
 
5
 
 
Captain Morgan
 
(1
 
)
 
(2
 
)
 
1
 
 
Tanqueray
 
17
 
 
19
 
 
21
 
 
Guinness
 
-
 
 
2
 
 
2
 
 
Local stars
 
 
 
 
Crown Royal
 
6
 
 
6
 
 
10
 
 
Yenì Raki
 
(19
 
)
 
6
 
 
(24
 
)
 
Buchanan's
 
6
 
 
6
 
 
8
 
 
J&B
 
(10
 
)
 
(8
 
)
 
(9
 
)
 
Windsor
 
(1
 
)
 
(16
 
)
 
(15
 
)
 
Old Parr
 
4
 
 
3
 
 
1
 
 
Bundaberg
 
(4
 
)
 
(1
 
)
 
(5
 
)
 
Black & White
 
10
 
 
14
 
 
9
 
 
Ypióca
 
(7
 
)
 
(1
 
)
 
(12
 
)
 
McDowell's
 
7
 
 
8
 
 
4
 
 
Shui Jing Fang(iii)
 
16
 
 
22
 
 
22
 
 
Reserve
 
 
 
 
Scotch malts
 
7
 
 
12
 
 
12
 
 
Cîroc vodka
 
(8
 
)
 
(8
 
)
 
(5
 
)
 
Ketel One(iv)
 
9
 
 
10
 
 
15
 
 
Don Julio
 
15
 
 
26
 
 
30
 
 
Bulleit
 
9
 
 
7
 
 
12
 
 
 
(i)   Spirits brands excluding ready to drink.
(ii)  Organic equals reported volume movement except for Johnnie Walker 3%.  
(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 17%. 
(iv) Ketel One includes Ketel One vodka and Ketel One Botanical.
 
 
Global giants represent 41% of Diageo's net sales and grew 5%. Growth was broad based across all brands with the exception of Captain Morgan. Captain Morgan was down 2%, driven by a 5% decline in US Spirits in a category that is also in decline. 
 
Local stars represent 20% of Diageo's net sales and grew 6%, largely driven by strong growth of Chinese white spirits, Crown Royal in US Spirits, McDowell's No. 1 in India, Buchanan's in Latin America and Caribbean and Black & White in Asia Pacific. This was partially offset by declines of Windsor in Korea and J&B in Iberia. 
 
Reserve brands represent 19% of Diageo's net sales and grew 11% largely driven by double digit growth of Don Julio in US Spirits and Mexico, Chinese white spirits and Casamigos in US Spirits partially offset by declines in Cîroc. Net sales of Johnnie Walker reserve variants were up 7%. 
 
 
ADDITIONAL FINANCIAL INFORMATION
Year ended 30 June 2019
 
SUMMARY INCOME STATEMENT
 
 
 
 
2018      
 
Exchange(a)    
 
Acquisitions and disposals(b)     
 
Organic movement(i)       
 
Reclassification(ii)     
 
2019 
 
 
£ million      
 
£ million    
 
£ million     
 
£ million     
 
£ million    
 
£ million 
 
Sales
 
18,432
 
 
(234
 
)
 
(61
 
)
 
1,157
 
 
-
 
 
19,294
 
 
Excise duties
 
(6,269
 
)
 
258
 
 
4
 
 
(420
 
)
 
-
 
 
(6,427
 
)
 
Net sales
 
12,163
 
 
24
 
 
(57
 
)
 
737
 
 
-
 
 
12,867
 
 
Cost of sales
 
(4,634
 
)
 
(9
 
)
 
9
 
 
(232
 
)
 
-
 
 
(4,866
 
)
 
Gross profit
 
7,529
 
 
15
 
 
(48
 
)
 
505
 
 
-
 
 
8,001
 
 
Marketing
 
(1,882
 
)
 
(5
 
)
 
(1
 
)
 
(144
 
)
 
(10
 
)
 
(2,042
 
)
 
Other operating expenses
 
(1,828
 
)
 
15
 
 
(15
 
)
 
(25
 
)
 
10
 
 
(1,843
 
)
 
Operating profit before exceptional items
 
3,819
 
 
25
 
 
(64
 
)
 
336
 
 
-
 
 
4,116
 
 
Exceptional operating items (c)
 
(128
 
)
 
 
 
 
 
(74
 
)
 
Operating profit
 
3,691
 
 
 
 
 
 
4,042
 
 
Non-operating items (c)
 
-
 
 
 
 
 
 
144
 
 
Net finance charges
 
(260
 
)
 
 
 
 
 
(263
 
)
 
Share of after tax results of associates and joint ventures
 
309
 
 
 
 
 
 
312
 
 
Profit before taxation
 
3,740
 
 
 
 
 
 
4,235
 
 
Taxation (d)
 
(596
 
)
 
 
 
 
 
(898
 
)
 
Profit for the year
 
3,144
 
 
 
 
 
 
3,337
 
 
 
(i)   For the definition of organic movement see Explanatory notes.
(ii)  For the year ended 30 June 2018 marketing costs of £10 million in South Africa have been reclassified from overheads to marketing.
 
 
(a) Exchange
The impact of movements in exchange rates on reported figures for net sales and operating profit is principally in respect of the weakening of sterling against the US dollar, the euro and the Kenyan shilling, partially offset by strengthening of sterling against the Turkish lira, the Indian rupee and the Australian dollar.
The effect of movements in exchange rates and other movements on profit before exceptional items and taxation for the year ended 30 June 2019 is set out in the table below.
 
 
Gains/(losses)
 
 
£ million
 
Translation impact
 
15
 
Transaction impact
 
10
 
Operating profit before exceptional items
 
25
 
Net finance charges
 
(9)
 
Associates - translation impact
 
Profit before exceptional items and taxation
 
16
 
 
 
 
Year ended            
30 June 2019            
 
Year ended      
30 June 2018      
 
Exchange rates
 
 
 
Translation  £1 =
 
$1.29
 
 
$1.35
 
 
Transaction £1 =
 
$1.33
 
 
$1.36
 
 
Translation  £1 =
 
€1.13
 
 
€1.13
 
 
Transaction £1 =
 
€1.13
 
 
€1.16
 
 
 
 
(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, Other definitions) to Sazerac completed on 20 December 2018 and to the prior year acquisition of the Casamigos brand.
 
See note 11 and note 12 for further details.
 
(c) Exceptional items
Exceptional operating charges in the year ended 30 June 2019 were £74 million before tax (2018 - £128 million).
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 prior to 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 in the year ending 30 June 2020.
Following recent assessments of competitors' indirect tax in respect of certain channel accounts and a recent regulatory change in Korea, Diageo has made a provision, in the year ended 30 June 2019, of £35 million in respect of prior years.
In July 2019 Diageo reached agreement with the French tax authorities resulting in penalty charges of £18 million (see Taxation below).
In the year ended 30 June 2018, there was an impairment charge of £128 million in respect of the Meta brand, Ethiopian tangible fixed assets, associated spare parts reported in inventory and goodwill allocated to the Africa Regional Markets cash-generating unit.
 
Non-operating exceptional items in the year ended 30 June 2019 were £144 million income before tax (2018 - £nil).
Diageo completed the sale of a portfolio of 19 brands to Sazerac on 20 December 2018 for an aggregate consideration of $550 million (£435 million) resulting in a profit before taxation of $198 million (£155 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 regulatory approvals. The prospective sale has resulted in an exceptional loss of approximately ZAR 156 million (£9 million).
The disposal of the Indian wine business resulted in a loss of £2 million.
 
See Explanatory notes, (c) Exceptional items for the definition of exceptional items.
 
(d) Taxation
The reported tax rate for the year ended 30 June 2019 was 21.2% compared with 15.9% for the year ended 30 June 2018. Included in the tax charge of £898 million for the year ended 30 June 2019 is a net exceptional tax charge of £39 million.
As disclosed in the interim announcement for the six month ended 31 December 2018, Diageo has been in discussions with the French tax authorities over the deductibility of certain interest costs, and assessments had been issued denying tax relief for interest costs incurred in the periods ended 30 June 2011 to 30 June 2017 with a maximum potential liability of €241 million (£213 million). In July 2019 Diageo reached a resolution on the treatment of interest costs for all open periods which resulted in a total exceptional charge of €100 million (£88 million), comprising a tax charge of €69 million (£61 million), penalties of €21 million (£18 million) and interest of €10 million (£9 million). This brings to a close all open issues with the French tax authorities for periods up to and including 30 June 2017.
During the year ended 30 June 2019 the Dutch Senate agreed to a phased reduction in the Dutch corporate tax rate  which is effective from 1 January 2020. An exceptional tax credit of £51 million principally arose from remeasuring the deferred tax liabilities in respect of the Ketel One vodka distribution rights from 25% to 20.5%.
In addition, in the year ended 30 June 2019 there was a £33 million exceptional charge 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.
For the year ended 30 June 2018 there was an exceptional tax credit of £203 million comprising the favourable impact of applying the Tax Cuts and Jobs Act, enacted on 22 December 2017, in the United States of £354 million, which was partially offset by the additional exceptional tax charge in respect of the transfer pricing agreement in the United Kingdom of £143 million and other net exceptional charges of £8 million.
The tax rate before exceptional items for the year ended 30 June 2019 was 20.6% compared with 20.7% in the prior year. The year ended 30 June 2019 benefitted from one-off items which are not expected to repeat. This combined with our changing business mix is expected to result in a tax rate before exceptional items for the year ending 30 June 2020 to be in the range of 21% to 22%.
 
(e) Dividend
The group aims to increase the dividend each year and the decision in respect of the dividend is made with reference to dividend cover as well as current performance trends including sales and profit after tax 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 2019 dividend cover is 1.9 times. The recommended final dividend for the year ended 30 June 2019 is 42.47 pence, an increase of 5% consistent with the interim dividend increase. This brings the full year dividend to 68.57 pence per share. It is expected that a mid-single digit increase in the dividend will be maintained until the cover is operating comfortably in the policy range.
Subject to approval by shareholders, the final dividend will be paid to holders of ordinary shares and US ADRs on the register as of 9 August 2019. The ex-dividend date both for the holders of the ordinary shares and for US ADR holders is 8 August 2019. The final dividend will be paid to shareholders on 3 October 2019. Payment to US ADR holders will be made on 8 October 2019. A dividend reinvestment plan is available to holders of ordinary shares in respect of the final dividend and the plan notice date is 12 September 2019.
 
(f) Share buyback
On 26 July 2018, a share buyback programme was approved 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, were returned to shareholders through an increase to the share buyback programme. 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.
In the year ended 30 June 2019, 94.7 million shares were repurchased for an aggregate consideration of £2.8 billion. After the year end a further 0.3 million shares were purchased for an aggregate consideration of £26 million, including settlement payments for the full tranche, which were recognised as a financial liability at 30 June 2019. The shares purchased under the share buyback programmes were cancelled.
On 25 July 2019, the Board approved plans for a further return of capital up to £4.5 billion to shareholders for the period F20 to F22.
 
 
MOVEMENT IN NET BORROWINGS AND EQUITY
 
 
Movement in net borrowings
 
 
2019    
 
2018
 
 
£ million    
 
£ million
 
Net borrowings at the beginning of the year
 
(9,091
 
)
 
(7,892
 
)
 
Free cash flow (a)
 
2,608
 
 
2,523
 
 
Acquisitions (b)
 
(56
 
)
 
(594
 
)
 
Sale of businesses and brands (c)
 
426
 
 
4
 
 
Share buyback programme
 
(2,775
 
)
 
(1,507
 
)
 
Proceeds from issue of share capital
 
1
 
 
1
 
 
Net sale/(purchase) of own shares for share schemes (d)
 
50
 
 
8
 
 
Dividends paid to non-controlling interests
 
(112
 
)
 
(80
 
)
 
Rights issue proceeds from non-controlling interests of subsidiary company
 
-
 
 
26
 
 
Net movements in bonds (e)
 
1,598
 
 
1,041
 
 
Purchase of shares of non-controlling interests (f)
 
(784
 
)
 
-
 
 
Net movements in other borrowings (g)
 
721
 
 
(26
 
)
 
Equity dividends paid
 
(1,623
 
)
 
(1,581
 
)
 
Net increase/(decrease) in cash and cash equivalents
 
54
 
 
(185
 
)
 
Net increase in bonds and other borrowings
 
(2,331
 
)
 
(1,015
 
)
 
Exchange differences (h)
 
(22
 
)
 
80
 
 
Other non-cash items
 
113
 
 
(79
 
)
 
Net borrowings at the end of the year
 
(11,277
 
)
 
(9,091
 
)
 
 
 
(a) See Key financial information, Free cash flow for the analysis of free cash flow.
 
(b) In the year ended 30 June 2019 Diageo has made a number of small acquisitions of brands, distribution rights and equity interests in various drinks businesses.
      In the year ended 30 June 2018 acquisitions included $706 million (£549 million) in respect of the completion of the acquisition of Casamigos. See note 11 for further details.
 
(c) In the year ended 30 June 2019, sale of businesses and brands represents the cash received on the disposal of a portfolio of 19 brands sold 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 £16 million (2018 - £68 million) less receipts from employees on the exercise of share options of £66 million (2018 - £76 million).
 
(e) In the year ended 30 June 2019, the group issued bonds of €2,600 million (£2,270 million) and £496 million (including £4 million discount and fee) and repaid bonds of €1,350 million (£1,168 million). In the comparable period the group issued bonds of €1,275 million (£1,136 million) and $2,000 million (£1,476 million) and repaid bonds of $2,100 million (£1,571 million).
 
(f) In the year ended 30 June 2019 purchase of shares of non-controlling interests comprised RMB 6,774 million (£775 million) and transaction costs of £9 million in respect of the acquisition of 23.43% of the share capital of Sichuan Shuijingfang Company Limited (SJF) in two separate transactions. This took Diageo's shareholding in SJF from 39.71% to 63.14%. 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 transactions in the year.
 
(g) In the year ended 30 June 2019 the net movement in other borrowings principally arose from the issue of commercial paper.
 
(h) The exchange arising on net borrowings of £22 million is primarily driven by unfavourable exchange movements on US dollar and euro denominated borrowings partially offset by a favourable movement on foreign exchange swaps and forwards.
 
 
Movement in equity
 
 
2019      
 
2018 
 
 
£ million      
 
£ million 
 
Equity at the beginning of the year
 
11,713
 
 
12,028
 
 
Profit for the year
 
3,337
 
 
3,144
 
 
Exchange adjustments (a)
 
255
 
 
(609
 
)
 
Remeasurement of post employment plans net of taxation
 
36
 
 
368
 
 
Purchase of shares of non-controlling interests (b)
 
(784
 
)
 
-
 
 
Rights issue proceeds from non-controlling interests of subsidiary company (c)
 
-
 
 
26
 
 
Dividends to non-controlling interests
 
(114
 
)
 
(101
 
)
 
Equity dividends paid
 
(1,623
 
)
 
(1,581
 
)
 
Share buyback programme
 
(2,801
 
)
 
(1,507
 
)
 
Other reserve movements
 
137
 
 
(55
 
)
 
Equity at the end of the year
 
10,156
 
 
11,713
 
 
 
 
(a) Exchange movement in the year ended 30 June 2019 primarily arose from exchange gains in respect of the US dollar and the Indian rupee partially offset by exchange losses on the Turkish lira. 
 
(b)  In the year ended 30 June 2019 Diageo acquired an additional 23.43% of the share capital of SJF which was already controlled and therefore consolidated prior to the transaction. This took Diageo's shareholding in SJF from 39.71% to 63.14%.
 
(c) In the year ended 30 June 2018 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 £151 million from £63 million at 30 June 2018 to £214 million at 30 June 2019. The increase primarily arose due to an increase in the market value of the assets held by the post employment schemes and the cash contributions paid into the post employment plans being in excess of the impact of the changes in financial assumptions and income statement charge.
The operating profit charge before exceptional items decreased by £34 million from £84 million for the year ended 30 June 2018 to £50 million for the year ended 30 June 2019 primarily due to changes made to future pension increases for members of the UK scheme (including a Pension Increase Exchange (PIE) option offered to current pensioners) and  changes to the principal Irish scheme which resulted in an aggregate past service credit of £54 million (2018 - £21 million in respect of changes to future pension increases in the principal Irish scheme).
Total cash contributions by the group to all post employment plans in the year ending 30 June 2020 are estimated to be approximately £170 million.
 
DIAGEO CONDENSED CONSOLIDATED INCOME STATEMENT
 
 
 
Year ended     
30 June 2019     
 
 
Year ended     
30 June 2018     
 
 
Notes
 
£ million     
 
 
£ million     
 
 
 
 
 
 
Sales
 
2
 
19,294
 
 
 
18,432
 
 
Excise duties
 
 
(6,427
 
)
 
 
(6,269
 
)
 
Net sales
 
2
 
12,867
 
 
 
12,163
 
 
Cost of sales
 
 
(4,866
 
)
 
 
(4,634
 
)
 
Gross profit
 
 
8,001
 
 
 
7,529
 
 
Marketing
 
 
(2,042
 
)
 
 
(1,882
 
)
 
Other operating expenses
 
 
(1,917
 
)
 
 
(1,956
 
)
 
Operating profit
 
2
 
4,042
 
 
 
3,691
 
 
Non-operating items
 
3
 
144
 
 
 
-
 
 
Finance income
 
4
 
442
 
 
 
243
 
 
Finance charges
 
4
 
(705
 
)
 
 
(503
 
)
 
Share of after tax results of associates and joint ventures
 
 
312
 
 
 
309
 
 
Profit before taxation
 
 
4,235
 
 
 
3,740
 
 
Taxation
 
5
 
(898
 
)
 
 
(596
 
)
 
Profit for the year
 
 
3,337
 
 
 
3,144
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
Equity shareholders of the parent company
 
 
3,160
 
 
 
3,022
 
 
Non-controlling interests
 
 
177
 
 
 
122
 
 
 
 
3,337
 
 
 
3,144
 
 
 
 
 
 
 
Weighted average number of shares
 
 
million      
 
 
million      
 
Shares in issue excluding own shares
 
 
2,418
 
 
 
2,484
 
 
Dilutive potential ordinary shares
 
 
10
 
 
 
11
 
 
 
 
2,428
 
 
 
2,495
 
 
 
 
 
 
 
 
 
pence      
 
 
pence      
 
Basic earnings per share
 
 
130.7
 
 
 
121.7
 
 
 
 
 
 
 
Diluted earnings per share
 
 
130.1
 
 
 
121.1
 
 
 
 
 
 
 
 
 
 
DIAGEO CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
 
 
Year ended     
30 June 2019     
 
 
Year ended
30 June 2018
 
 
£ million      
 
 
£ million
 
Other comprehensive income
 
 
 
 
  Items that will not be recycled subsequently to the income statement
 
 
 
 
Net remeasurement of post employment plans
 
 
 
 
-  group
 
33
 
 
 
456
 
 
-  associates and joint ventures
 
2
 
 
 
2
 
 
-  non-controlling interests
 
-
 
 
 
1
 
 
Tax on post employment plans
 
1
 
 
 
(91
 
)
 
 
36
 
 
 
368
 
 
  Items that may be recycled subsequently to the income statement
 
 
 
 
Exchange differences on translation of foreign operations
 
 
 
 
-  group
 
274
 
 
 
(631
 
)
 
-  associates and joint ventures
 
19
 
 
 
3
 
 
-  non-controlling interests
 
55