TIDM36VY
RNS Number : 8770T
Diageo Capital plc
22 March 2023
Diageo Capital plc
LEI: 213800L23DJLALFC4O95
Half-year results for the six months ended 31 December 2022
The Directors present their interim financial report for the six
months ended 31 December 2022.
Activities
Diageo Capital plc (the "company") is engaged in the provision
of treasury, risk and cash management for Diageo plc and its
subsidiary undertakings (the "group"). Diageo Capital plc's
principal activity is to raise external funds, principally using
the London and New York financial markets. The company finances
other companies of the group via intragroup loans and deposits.
Foreign exchange translation hedging, interest rate risk management
and cash management are also performed by the company.
The company does not anticipate any changes in its activities in
the remaining six months of the financial year.
Business review
Development and performance of the business of the company
during the period and position of the company as at 31 December
2022
The results of the company and the development of its business
are influenced to a considerable extent by group financing
requirements. Further information on the risk management policies
of the group is included in the Annual Report 2022 of Diageo plc
(see note 16 of the consolidated financial statements of Diageo
plc).
Net finance income was GBP22 million in the six months ended 31
December 2022, which is a GBP23 million increase from net finance
charge of GBP1 million in the six months ended 31 December
2021.
External borrowings increased by GBP1,630 million in the six
months ended 31 December 2022 to GBP7,627 million from GBP5,997
million in the year ended 30 June 2022, mainly due to 3 new bond
issuances during the period.
Financial and other key performance indicators
As the company forms part of the group's treasury operations,
the company's performance is measured at the group level.
GBP25 million profit was transferred to reserves in the six
month ended 31 December 2022, (six months ended 31 December 2021 -
GBPnil) and the other comprehensive income is GBP26 million (six
months ended 31 December 2021 - income of GBP10 million).
The Directors do not propose the payment of an interim dividend
to be distributed to shareholders in regard to the six months ended
31 December 2022 (six months ended 31 December 2021 - GBPnil).
Going concern
The company's business activities, together with the factors
likely to affect its future development and position, are set out
below. The company is expected to continue to generate profit for
its own account and to remain in a positive net asset position for
the foreseeable future. The company is in net current liability
position, however the company participates in the group's
centralised treasury arrangements and the parent will provide
financial support for the foreseeable future. The Directors have no
reason to believe that a material uncertainty exists that may cast
significant doubt about the ability of the company to continue as a
going concern.
On the basis of their assessment, the company's Directors have a
reasonable expectation that the company will be able to continue in
operational existence for a period of at least 12 months from the
date the financial statements are approved and signed as the
ultimate parent undertaking has agreed its policy is and in a
position to provide financial support for this period. Thus they
continue to adopt the going concern basis of accounting in
preparing the annual financial statements.
In arriving at this conclusion, the Directors have also
considered the potential impact that the principal risks outlined
below may have on the company and believe that any impact would be
minimal.
Principal and financial risks and uncertainties facing the
company as at 31 December 2022
The principal risks identified by the group are disclosed on
page 42-46 of the Diageo Annual Report 2022. The most relevant of
the group risks to this entity are the ones we have selected and
articulated below, together with specific considerations relating
to the company's operations and environment. If any of these risks
occur, the company's business, financial condition and operational
results could suffer. As the company forms part of the group's
financial operations, the financial risk management measures used
by management to analyse the development, performance and position
of the company's business are mainly similar to those facing the
group as a whole and are managed by the group's treasury
department.
In addition, given that the company performs treasury functions
for the group, it is exposed to foreign currency risk associated
with certain foreign currency denominated bonds and interest rate
risk arising principally on changes in US dollar and sterling
interest rates. The company uses derivative financial instruments
to hedge its exposures to fluctuations in interest and exchange
rates. Cash flow hedges are carried out to hedge the currency risk
of highly probable future foreign currency cash flows, as well as
the cash flow risk from changes in interest rates. Fair value
hedges are carried out to manage the currency and/or interest rate
risks to which the fair value of certain assets and liabilities are
exposed.
The Directors have assessed the potential risk of the increasing
interest rates and resulting potential increase in cost of
borrowing on the operation and the financial statements of the
company. Considering the company forms part of the group's
financial operations and as such it will be reimbursed for any
potential increase in the charges of its financial instruments
therefore the impact of this risk is considered to be very
limited.
Pandemics, geopolitical tension and ongoing supply chain
disruption
The pandemic continues to cause disruption in regions across the
world, contributing to a heightened level of uncertainty.
Vaccination rollouts are at all-time highs in many markets, and our
understanding and agility in responding to and managing through
volatility has grown. Supply chain disruption has emerged as a risk
of significant global impact. Ongoing geopolitical issues,
increasing inflation, strict regional responses to Covid-19
outbreaks, in addition to heightened demand for raw and packaging
materials, has led to ongoing constraints, longer lead times and
increased costs. We continue to improve our levels of resilience
across our end-to-end supply chain, while continuously monitoring
the external landscape and responding with agility.
The Directors have assessed that the key impacts from the
pandemic, ongoing supply chain disruption, and Russian invasion of
Ukraine on the company would be in respect of any change in credit
risk impacting the valuation of derivatives and the effect of
Covid-19 on remote working and ability to access IT systems, along
with a potentially heightened cyber risk.
The Directors believe that the ongoing mitigation actions taken
in relation to the pandemic, ongoing supply chain disruption and
Russian invasion of Ukraine have been agile and effective and that
the group is strongly positioned and will maintain adequate
liquidity. As part of the group viability statement assessment, the
group has prepared cash flow forecasts which have also been
sensitised to
Principal risks and uncertainties facing the company as at 31
December 2022 (continued)
Pandemics, geopolitical tension and ongoing supply chain
disruption (continued)
reflect severe, but plausible downside scenarios taking into
consideration the group's principal risks. In the base case
scenario, management has included assumptions for mid-single digit
net sales growth, operating margin improvement and global TBA
market share growth. In light of the ongoing geopolitical
volatility, the base case outlook and plausible downside scenarios
have incorporated considerations for a slower post-pandemic
economic recovery, supply chain disruptions, higher inflation and
further geopolitical deterioration. Even with these negative
sensitivities, the group's cash position is still considered to
remain strong, therefore it is not anticipated that the solvency or
the liquidity of the company will deteriorate.
Climate Risk
Considering that the company forms part of the group's treasury
operations, the probability of climate change related risks having
a significant and direct impact on the activities and operation of
the company is remote. The Directors believe that the risk
mitigation actions taken in relation to climate risk by the group
are appropriate measures in managing direct or indirect risks posed
by climate change. Including the risk to the company of being able
to access financing at competitive rates where borrowings could
become sustainability linked. Based on the climate risk assessment
performed by the group, the risk attached to the recoverability of
intercompany balances is considered to be remote. Further
information on the group's actions to combat climate change are
disclosed on pages 47-56 of Diageo plc's 2022 Annual Report.
Statement on Section 172 of the Companies Act 2006
Section 172 of the Companies Act 2006 requires the Directors to
promote the success of the company for the benefit of the members
as a whole, having regard to the interests of stakeholders in their
decision-making. In making decisions, the Directors consider what
is most likely to promote the success of the company for its
shareholders in the long term, as well as the interests of the
group's stakeholders. The Directors understand the importance of
taking into account the views of stakeholders and the impact of the
company's activities on local communities, the environment,
including climate change, and the group's reputation.
The company is a member of the group of companies (the "group")
whose ultimate holding company is Diageo plc ("Diageo"). In
accordance with the requirements of UK company law, Diageo has
included in its 2022 Annual Report and Accounts on page 7 a
statement as to how the Directors of Diageo have had regard to the
matters set out in Section 172 of the Companies Act 2006.
In order to ensure consistency in how the group operates with
regard to its wider stakeholders, the group has adopted an internal
Code of Business Conduct alongside a comprehensive framework of
global policies and standards that are designed to ensure, amongst
other things, that all companies throughout the group, including
the company, have regard to its wider stakeholders in a consistent
manner.
The company has therefore had regard to the matters set out in
Section 172 of the Act in a manner that is consistent with the
approach adopted by Diageo, while at the same time ensuring the
Directors of the company are fulfilling their duties.
Independent review
This interim report has not been audited or reviewed by
auditors.
Statement of Directors' responsibilities
The Directors confirm that this condensed set of interim
financial information has been prepared in accordance with
Financial Reporting Standard 104: Interim Financial Reporting,
issued by the Financial Reporting Council, and that the interim
management report includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R namely:
-- an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year, and
-- material related party transactions in the first six months
of the financial year and any material changes in the related party
transactions described in the last annual report.
The Directors of the company are listed in the company's annual
report and financial statements for the year ended 30 June
2022.
James Edmunds
Director
22 March 2023
INCOME STATEMENT (UNAUDITED)
Six months Six months
ended ended
31 December 31 December
2022 2021
Notes GBP million GBP million
Other operating income 3 1
Finance income 1 292 138
Finance charges 1 (270) (139)
--------------------------- ---------------------------
Operating profit 25 -
--------------------------- ---------------------------
Profit before taxation on ordinary
activities 25 -
Taxation on profit on ordinary
activities - -
Profit for the year 25 -
STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Six months Six months
ended ended
31 December 31 December
2022 2021
Notes GBP million GBP million
Other comprehensive income
Items that may be recycled subsequently
to the income statement
Effective portion of changes in
fair value of cash flow hedges
gains taken to other comprehensive
income/(expense) 60 66
-recycled to income statement (29) (53)
Tax charge on effective portion
of changes in fair value of cash
flow hedge 2 (5) (3)
--------------------------- ---------------------------
Other comprehensive income 26 10
--------------------------- ---------------------------
Profit for the year 25 -
Total comprehensive income for
the year 51 10
=========================== ===========================
BALANCE SHEET (UNAUDITED)
31 December 2022 30 June 2022
Notes GBP million GBP million
Non-current assets
Other receivables 9,992 8,137
Other financial assets 4 363 325
---------------------------- ----------------------------
10,355 8,462
Current assets
Trade and other receivables 11 92
Other financial assets 4 50 45
61 137
---------------------------- ----------------------------
Total assets 10,416 8,599
---------------------------- ----------------------------
Current liabilities
Trade and other payables (2,307) (2,256)
Other financial liabilities 4 (7) (2)
Borrowings and bank overdrafts 3 (1,533) (1,113)
---------------------------- ----------------------------
(3,847) (3,371)
Non-current liabilities
Borrowings 3 (6,094) (4,884)
Other financial liabilities 4 (287) (212)
Deferred tax liability (20) (15)
---------------------------- ----------------------------
(6,401) (5,111)
---------------------------- ----------------------------
Total liabilities (10,248) (8,482)
---------------------------- ----------------------------
Net assets 168 117
---------------------------- ----------------------------
Equity
Share premium 250 250
Fair value and hedging reserves 73 47
Other reserves 70 70
Retained deficit (225) (250)
---------------------------- ----------------------------
Total equity 168 117
---------------------------- ----------------------------
STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY
Subtotal
Share Hedging Other Other Retained
premium reserve reserves reserves deficit Total
GBP GBP
GBP million GBP million million GBP million GBP million million
Balance at 30
June
2021 250 51 70 121 (249) 122
Other
comprehensive
loss for the
period - (4) - (4) - (4)
Loss for the
period - - - - (1) (1)
Balance at 30
June
2022 250 47 70 117 (250) 117
Other
comprehensive
income for the
period - 26 - 26 - 26
Profit for the
period - - - - 25 25
Balance at 31
December
2022 250 73 70 143 (225) 168
================ ================ ============== =================== ==================== ==============
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
The company is incorporated and domiciled as a public limited
company in the United Kingdom.
The interim financial statements of the company for the six
months ended 31 December 2022 were authorised for issue in
accordance with a resolution of the Directors on 21 March 2023.
Basis of preparation
The annual report and financial statements of the company for
the year ended 30 June 2022 were prepared in accordance with
Financial Reporting Standard 101 Reduced Disclosure Framework (FRS
101) and Companies Act 2006.
The interim condensed financial statements for the six months
ended 31 December 2022 have been prepared in accordance with
Financial Reporting Standard 104 Interim Financial Reporting (FRS
104), issued by the Financial Reporting Council. The interim
condensed financial statements do not include all of the
information and disclosures required in the annual financial
statements, and should be read in conjunction with the company's
annual financial statements at 30 June 2022.
The accounting policies adopted in the preparation of the
interim financial statements are consistent with those followed in
the preparation of the company's annual report and financial
statements for the year ended 30 June 2022.
These condensed interim financial statements have not been
subject to a full audit or audit review and do not constitute
statutory financial statements as defined in section 434 of the
Companies Act 2006. The annual report and financial statements for
the year ended 30 June 2022 were approved by the Directors of the
company on 26 October 2022 and have been filed with the Registrar
of Companies. The report of the auditors on those financial
statements was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under section 498 of
the Companies Act 2006.
The company is a wholly owned subsidiary of Diageo plc and is
included in the consolidated financial statements of Diageo plc
which are publicly available.
These financial statements are separate financial
statements.
Functional and presentational currency
These financial statements are presented in sterling (GBP),
which is the company's functional currency.
All financial information presented in sterling has been rounded
to the nearest million.
Going concern
The financial statements have been prepared on a going concern
basis as a fellow group undertaking has agreed to provide financial
support for the foreseeable future.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) (continued)
1. FINANCE INCOME AND CHARGES
Six months ended Six months ended
31 December 2022 31 December 2021
GBP million GBP million
Interest income from fellow group
undertakings 206 89
Amortisation of fair value changes 1 1
Fair value gain on intra-group
derivative financial instruments 2 10
Fair value adjustment on borrowings 83 38
Total finance income 292 138
-------------------------------- --------------------------------
Interest charge to fellow group
undertakings (69) (11)
Interest charge on all other borrowings (112) (78)
Fair value loss on intra-group
derivative financial instruments (86) (48)
Discount and fee amortisation (3) (2)
Total finance charges (270) (139)
-------------------------------- --------------------------------
Net finance income/(charges) 22 (1)
================================ ================================
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) (continued)
2. TAXATION
The total tax charge for the six months ended 31 December 2022
was GBP5 million (31 December 2021 - GBP3 million charge), in
accordance with increase in deferred tax liability in relation to
the effective portion of changes in fair value of cash flow hedges.
The change in deferred tax liability is presented as part of the
other comprehensive income.
3. BORROWINGS AND BANK OVERDRAFTS
31 December
2022 30 June 2022
GBP million GBP million
US$ 1,350 million 2.625% bonds due
2023 1,125 1,115
US$ 500 million 3.500% bonds due 2023 416 -
Fair value adjustment to borrowings (8) (2)
--------------------------- ---------------------------
Borrowings due within one year and
bank overdrafts 1,533 1,113
--------------------------- ---------------------------
US$ 500 million 3.500% bonds due 2023 - 413
US$ 600 million 2.125% bonds due 2024 500 495
US$ 750 million 1.375% bonds due 2025 623 618
US$ 500 million 5.20% bonds due 2025 416 -
US$ 750 million 5.30% bonds due 2027 623 -
US$ 500 million 3.875% bonds due 2028 415 411
US$ 1,000 million 2.375% bonds due
2029 826 819
US$ 1,000 million 2.000% bonds due
2030 828 821
US$ 750 million 2.125% bonds due 2032 619 614
US$ 750 million 5.50% bonds due 2033 620 -
US$ 600 million 5.875% bonds due 2036 496 491
US$ 500 million 3.875% bonds due 2043 409 407
Fair value adjustment to borrowings (281) (205)
--------------------------- ---------------------------
Borrowings due after one year 6,094 4,884
=========================== ===========================
Total external borrowings 7,627 5,997
=========================== ===========================
The interest rates of external borrowings shown in the table
above are those contracted on the underlying borrowings before
taking into account any interest rate hedges. Bonds are stated net
of unamortised finance costs of GBP42 millions (30 June 2022 -
GBP37 millions).
Bonds are reported at amortised cost with a fair value
adjustment shown separately. All bonds issued by the company are
fully and unconditionally guaranteed by Diageo plc.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) (continued)
4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Fair value measurements of financial instruments are presented
through the use of a three-level fair value hierarchy that
prioritises the valuation techniques used in fair value
calculations.
The group maintains policies and procedures to value instruments
using the most relevant data available. If multiple inputs that
fall into different levels of the hierarchy are used in the
valuation of an instrument, the instrument is categorised on the
basis of the most subjective input.
Cross currency swaps and interest rate swaps are valued using
discounted cash flow techniques. These techniques incorporate
inputs at levels 1 and 2, such as foreign exchange rates and
interest rates. These market inputs are used in the discounted cash
flow calculation incorporating the instrument's term, notional
amount and discount rate, and taking credit risk into account. As
significant inputs to the valuation are observable in active
markets, these instruments are categorised as level 2 in the
hierarchy. There were no significant changes in the measurement and
valuation techniques, or significant transfers between the levels
of the financial assets and liabilities in the period ended 31
December 2022.
The company's financial assets and liabilities measured at fair
value are categorised as follows:
31 December
2022 30 June 2022
GBP million GBP million
Derivative assets 413 370
Derivative liabilities (294) (214)
Valuation techniques based on observable
market input 119 156
========================== ========================
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END
IR FLFLIVTIFFIV
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