PDF Annual Report 2014 - Diageo

[Pages:144]Annual Report 2014

DIAGEO ANNUAL REPORT 2014 DIAGEO IN 2014

About our reporting

Over the past year, Diageo has undertaken a review of its corporate reporting format and structure. This has resulted in the separation of Diageo's UK and US disclosure requirements and enables Diageo to progress its alignment against the International Integrated Reporting Council's Framework. This Annual Report 2014 is based on UK reporting requirements and Diageo separately files an Annual Report on Form 20-F with the US Securities and Exchange Commission. In addition, Diageo has prepared a Sustainability & Responsibility Performance Addendum, which is available

online at and outlines further economic, social and environmental disclosures in line with the Global Reporting Initiative Sustainability G4 Guidelines and the United Nations Global Compact advanced reporting criteria. The Sustainability & Responsibility Performance Addendum 2014, as well as the company's website and any other website referred to in this report, are not incorporated by reference and do not form part of either this Annual Report 2014 or the Annual Report on Form 20-F.

Within this Annual Report 2014, we demonstrate the connections between our competitive environment, group strategy, business model, and integrated risk management within a stringent corporate governance system.

Reflecting our commitment to transparency and best practice reporting, our approach will continue to develop over the coming years to ensure we meet the expectations of our investors and other stakeholders, and provide visibility into how Diageo creates sustainable value.

2014 Performance highlights1

Volume

EU156.1m

2013: 164.2 millions of equivalent units

Operating profit*

?3,134m

2013: ?3,479m

2014 Sustainability & Responsibility highlights

Alcohol in society Responsible drinking programmes

373programmes

2013: 315

Net sales

?10,258m

2013: ?11,303m

Earnings per share*

95.5p

2013: 103.1p

Water efficiency***

6.9L/L

2013: 7.0L/L

Marketing spend

?1,620m

2013: ?1,769m

Total dividend per share**

51.7p

2013: 47.4p

Employee super-engagement

38%

2013: 41%

1 Where appropriate, comparatives have been restated following the adoption of new accounting standards. * Before exceptional items. **Includes recommended final dividend of 32.0p. ***In accordance with Diageo's environmental reporting methodologies data for 30 June 2013 has been restated and total water used excludes irrigation water for agricultural purposes on land under the

operational control of the company. Within KPMG's limited assurance scope. Please see page 140 for further details.

This is the Annual Report of Diageo plc for the year ended 30 June 2014 and it is dated 30 July 2014. The Annual Report is made available to all shareholders on Diageo's website ().

This report includes names of Diageo's products, which constitute trademarks or trade names which Diageo owns or which others own and license to Diageo for use. In this report, the term `company' refers to Diageo plc and the terms `group' and `Diageo' refer to the company and its consolidated subsidiaries, except as the context otherwise requires.

Diageo's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union (EU) and IFRS as issued by the International Accounting Standards Board (IASB). References to IFRS hereafter should be construed as references to both IFRS, as adopted by the EU, and IFRS, as issued by the IASB. Unless otherwise indicated, all financial information contained in this document has been prepared in accordance with IFRS.

Unless otherwise stated in this document, percentage movements refer to organic movements. For a definition of organic movement see page 50. Share, unless otherwise stated, refers to value share. The market data contained in this document is taken from independent industry sources in the markets in which Diageo operates. Unless otherwise stated in this document, the percentage figures presented are reflective of a year-on-year comparison, namely 2013?2014, only.

The brand ranking information presented in this report, when comparing volume information with competitors, has been sourced from data published by IWSR, Impact Databank, Nielsen, Beverage Information Group or Plato Logic. Market data information and competitive set classifications are taken from independent industry sources in the markets in which Diageo operates.

? Diageo plc 2014.

DIAGEO ANNUAL REPORT 2014

01

DIAGEO IN 2014

Strategic report

Governance

DIAGEO IN 2014

This year we set out our Performance Ambition to create one of the best performing, most trusted and respected consumer products companies in the world.

Our Performance Ambition is supported by six performance drivers and six Sustainability & Responsibility priorities.

Read more on pages 14-19 This year, Diageo delivered 0.4% organic net sales growth reflecting growth in North America, stability in Western Europe and weakness in emerging market economies.

Read more on pages 26-29 More available online

Diageo is a global leader in beverage alcohol with an outstanding collection of brands across spirits, beer and wine categories. These brands include Johnnie Walker, Crown Royal, JB, Buchanan's, Windsor and Bushmills whiskies, Smirnoff, C?roc and Ketel One vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray and Guinness.

Diageo is a global company, and our products are sold in more than 180 countries around the world. The management team continues to invest to build our brands and routes to consumer, to deliver long term profitable growth. Diageo is listed on both the London Stock Exchange (DGE) and the New York Stock Exchange (DEO).

For more information about Diageo, our people and our brands, visit .

Visit Diageo's global responsible drinking resource, , for information, initiatives, and ways to share best practice.

Contents

Investor section

Strategic report

Governance

06

DIAGEO ANNUAL REPORT 2014

OUTSTANDING BREADTH AND DEPTH ACROSS PRICE POINTS

OUTSTANDING BREADTH AND DEPTH ACROSS PRICE POINTS

We have brands at almost every price tier of every category. The range of our price points means we are able to capture consumption shifts across the price spectrum. The breadth and depth of our business provides resilience, and enables us to sustain our performance over time.

Ultra Premium*

Scotch whisky

Other whisk(e)y

Vodka

Rum

Super Premium

Premium

Standard

Value

* Ultra premium includes prestige.

DIAGEO ANNUAL REPORT 2014

07

OUTSTANDING BREADTH AND DEPTH ACROSS PRICE POINTS

Liqueur

Tequila

Gin

Local spirits

Beer

Financial statements

Additional information for shareholders

Diageo Annual Report 2014 online

Sustainability & Responsibility Performance Addendum 2014

Diageo IR and Media app

Diageo plc is incorporated as a public limited company in England and Wales. Diageo was incorporated as Arthur Guinness Son and Company Limited on 21 October 1886. The group was formed by the merger of Grand Metropolitan Public Limited Company (GrandMet) and Guinness PLC (the Guinness Group) in December 1997. Diageo plc's principal executive office is located at Lakeside Drive, Park Royal, London NW10 7HQ and its telephone number is +44 (0) 20 8978 6000.

Cautionary statement: this document contains `forward-looking' statements. For our full cautionary statement, please see the inside back cover.

Strategic Report

-- Our business

02

-- Our structure

03

-- Brand performance

04

-- Outstanding breadth and depth across price points

06

-- Our Performance Ambition

08

-- Our business model

09

-- Chairman's statement

10

-- Chief Executive's statement

12

-- How we will deliver our ambition: Performance drivers

14

-- How we will deliver our ambition: Sustainability & Responsibility 16

-- How we measure performance: Key performance indicators 20

-- How we protect our business: Risk management and principal risks 22

-- Market dynamics

24

-- Group financial review

26

-- Business reviews

30

-- Category review

40

-- Sustainability & Responsibility review

42

-- Definitions and reconciliations of non-GAAP measures

50

to GAAP measures

Governance

-- Board of Directors and Company Secretary

54

-- Executive Committee

55

-- Corporate governance report

56

-- Report of the Audit Committee

60

-- Directors' remuneration report

63

-- Directors' report

83

Financial statements

84

Additional information for shareholders

139

Financial statements

Additional information for shareholders

02

DIAGEO ANNUAL REPORT 2014

OUR BUSINESS

OUR BUSINESS

Diageo is a global leader in beverage alcohol with iconic brands in spirits, beer and wine. We invest behind our brands to drive growth, providing consumers with choice and quality across categories and price points.

Our business is built on foundations laid by the giants of our industry. Arthur Guinness, Alexander Walker and all those that followed in their footsteps, cared deeply about the people and businesses they fostered. They were driven to create products that would last for generations, the best conditions for their people, and the best financial performance. Today, we act like those entrepreneurs, passionate about

our brands, our customers and consumers, our communities, and society as a whole. Our purpose is to help our consumers celebrate life, every day, everywhere, and to do so responsibly.

We give our people the freedom to do the best work of their careers. We take great pride in what we do, and in how we do it. Above all we value each other's commitment to delivering the best.

WE PRODUCE

WE MARKET

WE INNOVATE

WE SELL

Every year we produce more than

We are committed to ensuring that our Innovation is critical to our continued Everyone at Diageo is encouraged to

6.5 billion litres of our brands, from brands are at the front of consumers' growth. We are committed to finding sell or to help to sell. This is just one

more than 100 sites in 30 countries. minds whenever a purchase decision breakthrough innovations and ideas to expression of the world-class customer

arises. The strength of our portfolio serve our customers and consumers. focus that is at the heart of our business.

Our supply functions are responsible means that we have relevant brands at We identify new consumer trends, and Our founders and all those who followed,

for the distilling, brewing, bottling, almost every price tier of every category. innovate at scale boldly. Innovation is were obsessed with providing the best

packaging and distribution of our

a permanent engine of growth for quality products to their customers in

brands. We are committed to efficient, We work tirelessly to engage and delight our business and we are restless in markets at home and abroad. Today

sustainable production to the highest existing and new consumers, constantly our search for new products. We are we are no different. In each of our

quality standards, and are proud that innovating with our products and how open-minded to where these ideas 21 markets, we are passionate about

our supply facilities are recognised as we market. For decades our brands have will come from, combining our

ensuring our products are available to

leaders in environmental sustainability. been at the forefront of marketing

world-leading technical and research consumers in every appropriate shop

innovation and the same remains true capability with investments in smaller

Our 21 markets are designated as

today. We take seriously our obligations start-ups. In each of the last five years

import markets, import and third-party to market our brands responsibly, and our innovation pipeline has delivered

production markets or import and local to help our consumers make informed double-digit growth for Diageo.

production markets. Our export-led decisions about drinking, or not drinking.

or bar. We are continually working to deliver amazing consumer experiences and to extend our sales reach.

International Supply Centre (ISC),

We are committed to the development

based in Europe produces many of and implementation of programmes

our heritage brands, including our

to educate consumers about

Scotch whisky products. It employs responsible drinking.

over 4,000 people across more than

55 sites in Scotland, England, Ireland,

Italy and the Netherlands.

DIAGEO ANNUAL REPORT 2014

03

OUR STRUCTURE

Strategic report

OUR STRUCTURE

Diageo's strength is in its geographic reach. We operate as 21 geographically based markets around the world and have a presence in over 180 countries. We employ 28,000 talented people across our global business. 39% of Diageo's business is in the emerging markets in Latin America, Asia, Africa, Eastern Europe and Turkey. This presence is balanced through our strong businesses in the world's most profitable beverage alcohol market, the United States, and an integrated Western European business.

Governance

DIAGEO REPORTS AS FIVE REGIONS

Financial statements

FINANCIALS BY REGION Volume (EUm) Net sales* (?m) Operating profit** (?m)

North America Western Europe

Africa, Eastern

Latin America

Europe and Turkey and Caribbean

Asia Pacific

49.3 3,444 1,460

33.0 2,169

639

36.0 2,075

554

23.0 1,144

328

14.8 1,347

283

% SHARE BY REGION Volume (%) Net sales* (%) Operating profit** (%)

32

21

23

15

9

34

21

21

11

13

45

19

17

10

9

Reported net sales for the year ended 30 June 2014. *Excluding corporate net sales of ?79 million; **Excluding exceptional operating charges of ?427 million and corporate costs of ?130 million.

% SHARE OF NET SALES BY OUR 21 MARKETS***

EACH OF OUR 21 MARKETS IS ACCOUNTABLE FOR ITS OWN PERFORMANCE AND FOR DRIVING GROWTH

North America

Western Europe

>20%

US Spirits & Wines Western Europe

Africa, Eastern

Latin America

Europe and Turkey and Caribbean

Asia Pacific

3-6%

2-3% ................
................

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