Annual Report 2011
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Diageo plc © 2011 Diageo plc. Diageo Lakeside Drive All rights reserved. All brands mentioned Park Royal in this Annual Report Report Annual 2011 London are trademarks and NW10 7HQ are registered and/or otherwise protected Annual United Kingdom in accordance with applicable law. Repor t 2011 Tel +44 (0) 20 8978 6000 www.diageo.com Registered in England No. 23307 Go online! Glossary of terms and US equivalents Visit our 2011 Annual Report GO ONLINE and Sustainability & In this document the following words and expressions shall, unless the context otherwise requires, have the following meanings: Responsibility Report at: QUICK www.diageoreports.com EFFICIENT Term used in UK annual report US equivalent or definition GREEN Acquisition accounting Purchase accounting Register to receive all Associates Entities accounted for under the equity method future shareholder American Depositary Receipt (ADR) Receipt evidencing ownership of an ADS communications online: American Depositary Share (ADS) Registered negotiable security, listed on the New York Stock Exchange, representing four Diageo plc ordinary 101 www.diageoregistrars.com shares of 28 ⁄108 pence each Called up share capital Common stock Capital allowances Tax depreciation Capital redemption reserve Other additional capital Company Diageo plc Creditors Accounts payable and accrued liabilities 1 2 Debtors Accounts receivable Employee share schemes Employee stock benefit plans Employment or staff costs Payroll costs Equivalent units An equivalent unit represents one nine-litre case of spirits, which is approximately 272 servings. A serving comprises 33ml of spirits, 165ml of wine, or 330ml of ready to drink or beer. To convert volume of products other than spirits to equivalent units: beer in hectolitres divide by 0.9, wine in nine-litre cases divide by five, ready to drink in nine-litre cases divide by 10, and certain pre-mixed products classified as ready to drink in nine-litre cases divide by five. Euro, €, ¢ Euro currency Exceptional items Items that, in management’s judgement, need to be disclosed separately by virtue of their size or incidence Excise duty Tax charged by a sovereign territory on the production, manufacture, sale or distribution of selected goods (including imported goods) within that territory. It is generally based on the quantity or alcohol content of goods, rather than their value, and is typically applied to alcohol products and fuels. Finance lease Capital lease Financial year Fiscal year Fixed asset investments Non-current investments Free cash flow Net cash flow from operating activities, and net purchase and disposal of investments and property, plant and equipment Freehold Ownership with absolute rights in perpetuity GAAP Generally accepted accounting principles Group and Diageo Diageo plc and its consolidated subsidiaries IFRS International Financial Reporting Standards as endorsed and adopted for use in the European Union and International Financial Reporting Standards as issued by the International Accounting Standards Board 1 – Annual Report Impact Databank An international data resource for the beverage alcohol industry that is independent from industry participants 2 – Sustainability & LIBOR London Interbank Offered Rate Responsibility Report Merger accounting Pooling of interests Net asset value Book value Net sales Sales after deducting excise duties Noon buying rate Buying rate at noon in New York City for cable transfers in pounds sterling as certified for customs purposes This is the Annual Report of Diageo plc for A glossary of terms used in this report is by the Federal Reserve Bank of New York the year ended 30 June 2011 and it is dated included at the end of the document. Operating profit Net operating income 25 August 2011. It includes information that Diageo’s consolidated financial statements Organic movement At level foreign exchange rates and after adjusting for exceptional items, acquisitions and disposals for is required by the US Securities and Exchange have been prepared in accordance with continuing operations Commission (SEC) for Diageo’s US filing of its International Financial Reporting Standards Own shares Treasury stock Annual Report on Form 20-F. This information (IFRS) as endorsed and adopted for use in Pound sterling, sterling, £, pence, p UK currency may be updated or supplemented at the time the European Union (EU) and IFRS as Profit Earnings of the filing of that document with the SEC or issued by the International Accounting Profit and loss account Statement of income/accumulated earnings later amended if necessary, although Diageo Standards Board (IASB). Profit for the year Net income does not undertake to update any such References to IFRS hereafter should be Provisions Accruals for losses/contingencies information. The Annual Report is made construed as references to both IFRS as Redundancy charges Early release scheme expenses available to all shareholders on Diageo’s adopted by the EU and IFRS as issued by the Reserves Accumulated earnings, other comprehensive Designed by saslondon.com website (www.diageo.com). The content of IASB. Unless otherwise indicated, all financial income and additional paid in capital the company’s website and the Sustainability information contained in this document has Cover printed on Hello Silk and text RPI UK retail prices index & Responsibility Report should not be been prepared in accordance with IFRS. printed on Munken Polar. Scrip dividend Stock dividend considered to form a part of or be incorporated The brand ranking information presented in Both grades are from the FSC® Mixed SEC US Securities and Exchange Commission into this document. this report, when comparing volume Credit group of materials and are Share premium Additional paid in capital or paid in surplus This report includes names of Diageo’s information with competitors, has been manufactured at mills which are Shareholders’ funds Shareholders’ equity products, which constitute trademarks or sourced from data published during 2011 by certified to the ISO14001 and EMAS environmental standards. trade names which Diageo owns or which Impact Databank. Market data information and Shares Common stock others own and license to Diageo for use. In this competitive set classifications are taken from Shares and ordinary shares Diageo plc’s ordinary shares Printed by Fulmar Colour on behalf of RR Donnelley. report, the term ‘company’ refers to Diageo plc independent industry sources in the markets Shares in issue Shares issued and outstanding and terms ‘group’ and ‘Diageo’ refer to the in which Diageo operates. Trade and other payables Accounts payable and accrued liabilities Fulmar Colour are ISO14001 certified, CarbonNeutral®, Alcohol Free and FSC company and its consolidated subsidiaries, Trade and other receivables Accounts receivable US dollar, US$, $, ¢ US currency and PEFC Chain of Custody certified. except as the context otherwise requires. © Diageo plc 2011 The inks used are vegetable oil based. Contents 1 Performance summary Performance summary Diageo 2 Introduction Diageo is the world’s leading premium drinks business with an 4 Performance overview outstanding collection of beverage alcohol brands across spirits, 6 Regional overview wines and beer categories. These brands include Johnnie Walker, 8 Chairman’s statement Crown Royal, J&B, Buchanan’s, Windsor and Bushmills whiskies, Smirnoff, 10 Chief executive’s review Cîroc and Ketel One vodkas, Baileys, Captain Morgan, Jose Cuervo, 12 14 strategic brands Tanqueray and Guinness. 14 Growing our brands Diageo is a global company, with its products sold in more 16 Passion for our brands than 180 markets around the world. The management team expects 18 Historical information to continue the strategy of investing behind Diageo’s global brands, Business description Business launching innovative new products, and seeking to expand selectively Business description through partnerships or acquisitions that add long term value for 23 Strategy shareholders. The company is listed on both the New York Stock 24 Premium drinks Exchange (DEO) and the London Stock Exchange (DGE). 35 Risk factors For more information about Diageo, its people and its brands, 39 Cautionary statement concerning visit www. diageo.com. For Diageo’s global resource that promotes forward-looking statements responsible drinking through the sharing of best practice tools, information and initiatives, visit www.DRINKiQ.com. Business review Diageo’s brand positions, global scale and strong routes to 41 Introduction market delivered a good performance in the year, and our platform 43 Operating results 2011 for growth is strong. compared with 2010 58 Operating results 2010 review Business compared with 2009 72 Trend information 72 Liquidity and capital resources 75 Capital commitments 75 Other contractual obligations 76 Post balance sheet events 76 Off-balance sheet arrangements 76 Risk management 78 Critical accounting policies 79 New accounting standards Essential reads Governance Europe £2,614mGovernance 10 11 1 81 Board of directors and executive committee North America £3,324m 9 83 Directors’ remuneration report 8 99 Corporate governance report 108 Directors’ report 7 Financial statements International £2,747m 111 Independent auditor’s report to the 6 Asia Pacific £1,181mmembers of Diageo plc Performance overview — Page 4 2 Regional overview — Page 6 112 Consolidated income statement 113 Consolidated statement 5 statementsFinancial of comprehensive income 114 Consolidated balance sheet 4 115 Consolidated