TIDM36VY
RNS Number : 6387F
Diageo Capital plc
22 March 2022
Diageo Capital plc
LEI: 213800L23DJLALFC4O95
Half-year results for the six months ended 31 December 2021
The Directors present their interim financial report for the six
months ended 31 December 2021.
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
2021
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 2021 of Diageo plc
(see note 15 of the consolidated financial statements of Diageo
plc).
Net finance charge was GBP1 million in the six months ended 31
December 2021, which is a GBP4 million decrease from net finance
charge of GBP5 million in the six months ended 31 December
2020.
External borrowings increased by GBP112 million in the six
months ended 31 December 2021 to GBP5,550 million from GBP5,438
million in the year ended 30 June 2021, mainly due to the
strengthening of US dollar versus sterling.
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.
There was no profit or loss transferred to reserves in the six
month ended 31 December 2021, (six months ended 31 December 2020 -
GBPnil) and the other comprehensive loss is GBP10 million (six
months ended 31 December 2020 - loss of GBP105 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 2021 (six months ended 31 December 2020 - 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.
Going concern (continued)
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 Covid-19 outbreak 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 2021
The principal risks identified by the group are disclosed on
page 45-48 of the Diageo Annual Report 2021. 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.
Brexit
The European Union and the United Kingdom have agreed the EU-UK
Trade and Cooperation Agreement which fully came into force on 1
May 2021. We remain of the view that the direct financial impact to
the group or the company will not be material. A cross-functional
working group is in place to identify and assess the consequences
of Brexit, with all major functions within our business
represented, including the treasury function responsible for
raising external funding. The group will monitor the implications
of the Agreement very closely, as well as the risks brought by the
broader environment, including a continuing focus on identifying
critical decision points to ensure potential disruption is
minimised, and take prudent actions to mitigate these risks
wherever practical.
Pandemics
Global outbreak of a public health threat or fear of such an
event could result in continuing, periodic and unplanned government
restrictions and regulations. This could include the shutdown of
the on-trade, restrictions to travel, and quarantining of employees
resulting in a negative impact to consumer demand, or a slowdown or
halting of the group business operations due to supply or logistic
constraints which could adversely impact the group financial
performance. To mitigate these challenges the group regularly
gathers data and obtains insights which enable management to assess
conditions in the markets where the group operates and to amend
forecasts and investment decisions appropriately.
Principal risks and uncertainties facing the company as at 31
December 2021 (continued)
Pandemics (continued)
The Directors have assessed that the key impacts from the
pandemic 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 risk mitigation actions taken in
relation to the Covid-19 pandemic have been agile and effective and
that the group will maintain adequate liquidity and be strongly
positioned for a recovery in consumer demand. During the year, the
group took actions to protect the business and support Diageo
partners and communities. As part of the group viability statement
assessment, the group has prepared cash flow forecasts which have
also been sensitised to reflect severe, but plausible downside
scenarios taking into consideration the group's principal risks.
The potential financial impact of a slower Covid-19 pandemic
recovery has been modelled in the plausible downside scenarios.
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 50-55 of Diageo plc's 2021 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 2021 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. The
company's principal activity is to raise external funds through
debt capital markets in order to finance other companies in the
group, and therefore in making their decisions, the Directors
consider the interests of the holders of the company's listed debt
securities as well as the needs of the group.
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.
Principal risks and uncertainties facing the company as at 31
December 2021 (continued)
Statement on Section 172 of the Companies Act 2006
(continued)
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
2021.
J Edmunds
Director
22 March 2022
INCOME STATEMENT (UNAUDITED)
Six months Six months
ended ended
31 December 31 December
2021 2020
Notes GBP million GBP million
Other operating income 1 5
Finance income 1 138 145
Finance charges 1 (139) (150)
--------------------------- ---------------------------
Operating loss - -
--------------------------- ---------------------------
Loss before taxation on ordinary
activities - -
Taxation on profit on ordinary
activities - -
Loss for the period - -
STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Six months Six months
ended ended
31 December 31 December
2021 2020
Notes GBP million GBP million
Other comprehensive income/(expense)
Items that may be recycled subsequently
to the income statement
Effective portion of changes in
fair value of cash flow hedges
-gains/(losses) taken to other
comprehensive (expense)/income 66 (280)
-recycled to income statement (53) 150
Tax (charge)/credit on effective
portion of changes in fair value
of cash flow hedge 2 (3) 25
--------------------------- --------------------------
Other comprehensive income/(expense) 10 (105)
--------------------------- --------------------------
Profit for the period - -
Total comprehensive income/(expense)
for the period 10 (105)
=========================== ==========================
BALANCE SHEET (UNAUDITED)
31 December
2021 30 June 2021
Notes GBP million GBP million
Non-current assets
Other receivables 8,002 7,594
Other financial assets 4 295 295
--------------------------- ----------------------------
8,297 7,889
Current assets
Trade and other receivables 19 17
Other financial assets 4 12 3
31 20
--------------------------- ----------------------------
Total assets 8,328 7,909
--------------------------- ----------------------------
Current liabilities
Trade and other payables (2,522) (2,217)
Other financial liabilities 4 (12) (3)
Borrowings and bank overdrafts 3 - (13)
--------------------------- ----------------------------
(2,534) (2,233)
Non-current liabilities
Borrowings 3 (5,550) (5,425)
Other financial liabilities 4 (92) (112)
Deferred tax liability (20) (17)
--------------------------- ----------------------------
(5,662) (5,554)
--------------------------- ----------------------------
Total liabilities (8,196) (7,787)
--------------------------- ----------------------------
Net assets 132 122
--------------------------- ----------------------------
Equity
Share premium 250 250
Fair value and hedging reserves 61 51
Other reserves 70 70
Retained deficit (249) (249)
--------------------------- ----------------------------
Total equity 132 122
--------------------------- ----------------------------
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 million GBP million GBP million GBP million GBP million GBP million
Balance at 30
June
2020 250 155 70 225 (250) 225
Other
comprehensive
income for the
period - (104) - (104) - (104)
Profit for the
period - - - - 1 -
Balance at 30
June
2021 250 51 70 121 (249) 122
Other
comprehensive
expense for
the period - 10 - 10 - 10
Balance at 31
December
2021 250 61 70 131 (249) 132
================ =============== ============== ================== ==================== =============
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 2021 were authorised for issue in
accordance with a resolution of the Directors on 22 March 2022.
Basis of preparation
The annual report and financial statements of the company for
the year ended 30 June 2021 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 2021 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 2021.
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 2021.
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 2021 were approved by the Directors of the
company on 27 October 2021 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.
1. FINANCE INCOME AND CHARGES
Six months ended Six months ended
31 December 2021 31 December 2020
GBP million GBP million
Interest income from fellow group
undertakings 89 90
Amortisation of fair value changes 1 -
Fair value gain on intra-group
derivative financial instruments 10 12
Fair value adjustment on borrowings 38 43
Total finance income 138 145
--------------------------------- ---------------------------------
Interest charge to fellow group
undertakings (11) (11)
Interest charge on all other borrowings (78) (79)
Fair value loss on intra-group
derivative financial instruments (48) (55)
Discount and fee amortisation (2) (5)
Total finance charges (139) (150)
--------------------------------- ---------------------------------
Net finance charges (1) (5)
================================= =================================
2. TAXATION
The total tax charge for the six months ended 31 December 2021
was GBP3 million (31 December 2020 - GBP25 million income), 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
2021 30 June 2021
GBP million GBP million
Bank overdrafts - 13
Borrowings due within one year and
bank overdrafts - 13
--------------------------- --------------------------
US$ 500 million 3.500% bonds due 2023 370 360
US$ 1,350 million 2.625% bonds due
2023 999 970
US$ 600 million 2.125% bonds due 2024 444 431
US$ 750 million 1.375% bonds due 2025 553 537
US$ 500 million 3.875% bonds due 2028 369 358
US$ 1,000 million 2.375% bonds due
2029 733 711
US$ 1,000 million 2.000% bonds due
2030 735 714
US$ 750 million 2.125% bonds due 2032 550 534
US$ 600 million 5.875% bonds due 2036 440 427
US$ 500 million 3.875% bonds due 2043 364 353
Fair value adjustment to borrowings (7) 30
--------------------------- --------------------------
Borrowings due after one year 5,550 5,425
=========================== ==========================
Total external borrowings 5,550 5,438
=========================== ==========================
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 GBP36 millions (30 June 2021 -
GBP37 millions).
Bonds are reported at amortised cost with a fair value
adjustment shown separately. All bonds, medium term notes and
commercial papers issued by the company are fully and
unconditionally guaranteed by Diageo plc
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.
Foreign currency forwards and swaps, 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 2021.
The company's financial assets and liabilities measured at fair
value are categorised as follows:
31 December
2021 30 June 2021
GBP million GBP million
Derivative assets 307 298
Derivative liabilities (104) (115)
Valuation techniques based on observable
market input 203 183
========================== ========================
(Level 2)
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END
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