Deo



|Diageo plc |(DGE – LSE, DEO – NYSE) |$123.55 |

Note: More details to come; changes are highlighted. Except where highlighted, no other sections of this report have been updated.

Reason for Report: Flash Update: Nine Months Ended Interim Report

Prev. Ed.: Feb 13, 2013: 1H13 Earnings Update

Flash Update [full update in progress; to follow]

Diageo’s Performance in First Nine Months of fiscal 2013 – Apr 18, 2013

On Apr 18, 2013, Diageo Plc. (DEO) reported interim management statement for the nine months ended 31 March 2013. On a reported basis, net revenue (i.e. total revenue minus excise duties) increased 6%. On an organic basis also, revenues increased 5%, while volume grew 1% y/y.

Segment Details

Except Europe all the regions have delivered positive organic sales growth.

In North America, Diageo’s organic sales increased 6% in the first nine months of fiscal 2013. Price/mix contributed to organic sales growth. Price increases taken on US spirits brands since May 2012 delivered stronger price/mix. US spirits remain the key driver of performance for Diageo North America.

In Europe, organic sales fell 4%. The economy in Southern Europe remains challenging.

In Africa, organic sales increased 9% during the period. Trading in Nigeria weakened slightly and there was a short term impact from the elections in Kenya.

The Latin America and Caribbean region delivered a strong performance in the year, with organic sales growth of 14%. Sales were soft due to consumer weakness in Brazil. Moreover, in Colombia and Venezuela, systems changes led to higher shipments in the first half which reversed in Q3.

In the Asia Pacific region, sales increased 4% organically. Sales in this region were affected by strong year over comparison and continued decline of the scotch market in Korea.

MORE DETAILS WILL COME IN LATER, IMMINENT EDITIONS OF ZACKS RD REPORTS ON DEO.

Portfolio Manager Executive Summary [NOTE: Only highlighted material has been changed]

Diageo plc is the world's largest spirits company with sizeable interests in beer and wine. Its main brands are Smirnoff, Ketel One, Johnnie Walker, Guinness, Captain Morgan, Baileys, J&B, Jose Cuervo (distribution rights), and Tanqueray.

Of the eight analysts covering the stock, six firms provided positive ratings and two assigned neutral ratings, while none rendered negative ratings. Six brokerage firms provided target prices in the range of $115.00 to $129.00.

The following is a summarized opinion of the diverse brokerage viewpoints:

Positive or equivalent outlook (75.0%; 6/8 firms): The bullish analysts feel that the company’s fast expansion into the emerging markets provides it an edge over its competing popular very fast in Brazil, Russia, India, and China. Diageo has a strong position in these markets and is rapidly increasing sales and market share, albeit from a low base. The analysts are also optimistic about the acquisition of major stake in India’s largest brewer, United Spirits, as it opens the opportunity to tap the potential Indian market. Moreover continuous innovation and promotional campaigns ensure a solid topline for the company.

Neutral or equivalent outlook (25.0%; 2/8 firms): The bearish analysts feel that although the company’s growth outlook remains on track slow recovery in the US economy coupled with uncertainty in the European region on the back of the Eurozone crisis poses difficult times for the company in the coming quarters. Moreover, rising consciousness on the adverse effects of alcohol beverages is also a potential risk for the company.

April 17, 2012

Overview [NOTE: Only highlighted material has been changed]

The analysts identified the following issues as critical to evaluating the investment merits of DEO:

|Key Positive Arguments |Key Negative Arguments |

|Continued innovation and product development provides an edge to the company |The weakness in European markets on the back of the Eurozone crisis is |

|over its peers. |posing great difficulty for the company |

|Fast penetration in emerging markets provides stability to the company and |A certain amount of concern over U.S. consumer spending in the |

|helps to balance revenue generation from already saturated, developed markets. |intermediate term remains (particularly in the ready-to-drink (RTD) |

| |market). |

|The company’s stron portfolio of brands is a dominant player in the market. |Increased social and political attention is directed towards the |

| |alcoholic beverage industry as a result of public concern over problems|

| |related to alcohol abuse and health consequences misuse. of alcohol. |

| |adversely affects company’s sales. |

London-based Diageo plc engages in the manufacture and distribution of spirits, wines, and beer worldwide. The company manufactures its products under the brand names of Smirnoff vodka, Johnnie Walker Scotch whiskies, Guinness stout, Baileys Original Irish Cream liqueur, J&B Scotch whisky, Captain Morgan rum, and Tanqueray gin. Diageo has other spirits brands such as Crown Royal Canadian whisky, Buchanan’s De Luxe whisky, Gordon’s gin and vodka, Windsor Premier whisky, Bell’s Extra Special whisky, Dimple/Pinch whisky, Seagram’s 7 Crown American whiskey, Old Parr whisky, Seagram’s VO Canadian whisky, and Bundaberg rum; wine brands include Beaulieu Vineyard wine, Sterling Vineyards wine, Blossom Hill wine and Piat D’Or wine; beer brands comprise Harp Irish lager, Smithwick’s ale, Malta non-alcoholic malt, and Red Stripe lager. In addition, Diageo also owns distribution rights for José Cuervo tequila brands in the United States and other countries. The company’s website is .

NOTE: Diageos fiscal year ends on June 30; fiscal references do not coincide with the calendar year.

April 17, 2012

Long-Term Growth [NOTE: Only highlighted material has been changed]

Diageo is well positioned for long-term growth. The excellent diversification of the company’s brand portfolio across markets will allow the company to maintain its position in the event of a downturn in consumer spending. Moreover, global diversification is the company’s strength. Acquisitions like Ketel One, Zacapa, Mey İçki and ShuiJingFang have further broadened the portfolio, and are expected to drive sales going forward.

The company is also making gains in China, the largest market in terms of population. However, its primary objective is to build a Scotch Whisky culture in China and capture sales opportunities from high net worth individuals.

In Asia Pacific and Latin American region, Diageo is number one among International Spirits, led by Johnnie Walker and Windsor brands. Guinness beer has a strong presence, as do the leading premium local spirits brands ShuiJingFang in Chinese White spirits and the Vietnamese Hanoi vodka. Eight out of 12 of standard and higher-quality whiskies consumed in Latin America and the Caribbean are Diageo brands.

The acquisition of a major stake in India’s largest brewer, United Spirits, opens the opportunity to tap the potential Indian market. We are also optimistic about the renewal of distribution agreements with United Brokerage, Inc. and Johnson Brothers as they are expected to solidify Diageo’s position in traditional spirit markets.

February 13, 2013

Target Price/Valuation [NOTE: Only highlighted material has been changed]

Provided below is a summary of valuation/ratings as compiled by Zacks Research Digest:

|Rating Distribution |

|Positive |75.0%↓ |

|Neutral |25.0%↑ |

|Negative |0.0% |

|Avg. Target Price |$121.36↑ |

|Digest High |$129.00↑ |

|Digest Low |$115.00↑ |

|No. of Analysts with Target Price/Total |6/8 |

Risks to Diageo’s target price: Upside risks include strengthening of the British Pound, strong global portfolio, exposure to emerging markets and an attractive yield. Downside risks include macro-economic concerns, foreign currency fluctuations and legal/regulatory developments.

Recent Events [NOTE: Only highlighted material has been changed]

Diageo’s Performance in 1H13 – February 04, 2013

Diageo Plc.’s earnings in the first half of fiscal 2013 went up 9% y/y to 60.9 pence ($0.97 * per share) from 55.9 pence ($0.89 ** per share) in the same period in the previous year.

The increase in profit was the result of strong organic growth of Diageo’s strategic brands. Increasing reach to the burgeoning middle class coupled with fast penetration of the company into emerging markets contributed to the positive results.

On a reported basis, net revenue (i.e. total revenue minus excise duties) increased 5% to £6.0 billion ($9.6 billion) in the first half of fiscal year 2013 ending December 31, 2012. On an organic basis also, revenues increased 5%, while volume grew 1% y/y.

Diageo increased its marketing spending by 5% organically in the first half of fiscal 2013. Operating profit before exceptional items (excluding acquisitions and disposals) went up 9% year over year, on an organic basis.

Segment Details

Except Europe, all the regions have delivered positive organic sales growth.

In North America, Diageo’s organic sales increased 5% in the first half of fiscal 2013, with a volume growth of 1%. Price/mix contributed 4 percentage points to organic sales growth. Marketing spending increased 5% in the region, primarily because of the launch of Smirnoff Iced Cake and Kissed Caramel and Ketel One vodka. Operating profit grew 9% organically in the year.

Among the spirits, Cîroc showed strong performance in the first half of the year.. The lack of innovation in beers impacted performance in the first half.

In Europe, organic sales fell 2% along with volume declines of 3%. The company, saw 3% decline in operating profit despite a 2% decline in marketing spending.

The economy in Southern Europe remains challenging. While Diageo’s performance in Great Britain remained unchanged, Germany and Benelux performed well during the period. Johnnie Walker’s ultra premium brand performed well in the region.

In Africa, organic sales increased 10% in the first half, with a volume growth of 3%. Marketing spending increased 7% in the region, particularly behind core beer brands and international spirits. However, operating profit increased 17%.

The Latin America and Caribbean region delivered a strong performance in the year, with organic sales growth of 18% and volume growth of 7%. The company also increased its marketing spending by 22% to enhance the brand equities in scotch, increase the significance of vodka and support innovation. Despite the increasing costs, operating profit grew 23% in the first half.

In the Asia Pacific region, sales increased 6% organically with a volume growth of 1%. Marketing spending jumped 3% and operating profit grew 10%, on an organic basis. However, uncertainty around the global economy led to further contraction of the whisky market in Korea.

The company is increasing marketing investment in all the geographical segments, and is focusing more on its premium brands. The strategy of transitioning to high margin high priced products is helping the company improve its margins

Currency Exchange Rate for 1H13: £1 = $1.59292

Currency Exchange Rate for 1H12: £1 = $1.59244

Diageo Completes Beer Business Deal – January 29, 2013

Diageo announced that it has completed its joint venture with India’s largest spirits company United Spirits Limited, to own United National Breweries' traditional sorghum beer business in South Africa. Diageo has bought 50% of the business for approximately £25 million ($36.0 million). The remaining half of the company will be held by a company affiliated to Dr. Vijay Mallya, Chairman of United Spirits Limited.

The deal dates back to November 2012, when Diageo and Mallya had signed a Memorandum of Understanding (MoU) for the traditional sorghum beer business of South Africa-based United National Breweries. The 50-50 joint venture will foray into certain emerging markets of Africa and Asia (excluding India).

Along with the signed MoU, Diageo also agreed to acquire a 53.4% stake in United Spirits for £1.3 billion ($2.05 billion), in order to venture into the fast growing alcohol market in India. Besides financial strength, the acquisition is expected to help to reduce debt and provide United Spirits with the opportunities it seeks. For Diageo, United Spirits will not only open up the growing market Indian market, but also assure access to a burgeoning middle class and a rising beer consumption trend.

Entrepreneur Mallya sold the 53.4% stake in United Spirits to Diageo as he requires sufficient cash to bail his Kingfisher Airlines out of bankruptcy

Revenue [NOTE: Only highlighted material has been changed]

Diageo reported net revenue (i.e. total revenue minus excise duties) of £6.0 billion ($9.6 billion) in 1H13, up 5.0% y/y from £5.7 billion ($9.1 billion) in 1H12. Volume grew 1% y/y organically to 88.8 million equivalent units in 1H13 on the back of the company’s expanding customer base among the middle class in the emerging markets.

North America – According to the company, reported net sales went up 5.0% y/y to £1.94 billion ($3.1 billion) in 1H13 versus £1.88 billion ($2.99 billion) in 1H12. Volume went up 1% y/y. Organic net sales went up 6% y/y in 1H13 on the back of double digit growth rates by reserve brands and strong performance of Ciroc and Ketel One vodkas.

As the economy showed mixed signs of recovery, product innovation together with increased sales of premium and super premium brands drove price/mix improvement. Among the strategic brands, Ciroc reported highest net sales growth of 14%. Jose Cuervo sales declined y/y by 7% during the period.

Europe – According to the company, net sales were £1.57 billion ($2.5 billion), down 19.0% y/y, in 1H13. Volume and organic sales declined by 3% and 2% y/y in 1H13.

The economic environment, particularly in Southern Europe, has impacted sales. However, Germany and Benelux delivered double digit growth in the first half. Among the strategic brands, Captain Morgan reported highest net sales growth of 18%. Baileys, Guiness and J&B reported y/y decline in sales. While spirit brands remained flat, beer, wine and ready to drink categories reported y/y decline during the period.

Africa – According to the company, net sales were £795 million ($1.3 billion), up 9.0% y/y. Volume went up 3% y/y and organic sales climbed 12% y/y in 1H13.

The company increased its sales force to reach the distant markets of the region. Increased investment in core beer brands and international spirits also helped to boost sales in the region. Moreover, continued innovation tailored to attract the emerging middle class also boosted revenue during the quarter. New products launched last year, were Dubic lager in Nigeria, Snapp ready to drink, Malta Guinness low sugar and new pack formats. Net sales growth in East Africa went up by 11%, 15% in South Africa, 6% in Nigeria, and 9% in Africa Regional Markets.

Among the strategic brands, Johnnie Walker reported highest net sales growth of 38% y/y. Guinness sales crawled up by 4% y/y. While spirit brands reported a y/y growth of 20%, beer and ready-to-drink brands declined 17% and 5% respectively from the previous year.

Latin America and Caribbean – According to the company, net sales were £796.0 million ($1.3 billion), up 18.0% y/y from £687.0 million ($1.1 billion), in 1H13. Volume went up 7% y/y and organic sales climbed 18% y/y in 1H12.

Net sales growth in Latin America was driven by strong business in scotch brands like Johnnie Walker, Buchanan’s and Old Parr. Andean regions reported strong y/y sales growth of 34% fuelled by strong scoth business, pricing and innovation. However, Paraguay, Uruguay and Brazil reported a sluggish y/y growth of 2% in 1H13 due to currency devaluation.

Among the strategic brands, Buchanan’s reported highest net sales growth of 35% y/y. Baileys sales climbed by 2% y/y. While spirit brands reported a y/y growth of 20% beer and wine sales climbed 3% from the previous year.

Asia Pacific – According to the company, net revenue in 1H13 was £882 million ($1.4 billion), up 6.0% versus £795 million ($1.3 billion) in 1H12. Sales growth was strong in emerging markets of the region, partially offset by weakness in Korea. Volume went up 1% y/y in 1H13, while organic sales climbed 6% from the previous year.

Net sales growth in Asia Pacific was driven by strong performance in Greater China, Global Travel Asia & Middle East and South East Asia mainly due to positive price/mix. Soft results in the vodka category and a reduction in stock in trade led to a 5% decline in net sales in India

Among the strategic brands, Johnnie Walker reported highest net sales growth of 18% y/y. Windsor sales declined by 25% y/y. While beer and spirits brands reported a y/y growth of 7%, ready-to-drink sales crawled 1% from the previous year.

Outlook

Despite an improving economic outlook, management stated that the company will remain cautious about its growth in FY13. The management has asserted that the company has a good combination of brand value, distribution channels and consistent demand.

Analysts are of the opinion that Diageo’s immense brand value, huge company size and fast go-to-market strategy will help the company to drive its revenue growth, going forward. They also believe that the recent acquisition of the United Spirits Limited in India will open a huge potential to capture the large market of India and boost sales.

Currency Exchange Rate for 1H13: £1 = $1.59292

Currency Exchange Rate for 1H12: £1 = $1.59244

Margins [NOTE: Only highlighted material has been changed]

Diageo increased its marketing spending by 5% organically in the first half of fiscal 2013. Operating profit before exceptional items (excluding acquisitions and disposals) went up 9% y/y in the year, on an organic basis

Outlook

Analysts expect Diageo to witness margin expansion heading into 2H12 based on moderating transaction costs and currency tailwinds.

Currency Exchange Rate for 1H13: £1 = $1.59292

Currency Exchange Rate for 1H12: £1 = $1.59244

Earnings per Share [NOTE: Only highlighted material has been changed]

Net earnings per share went up 9% y/y to 60.9 pence ($0.97 per share) from 55.9 pence ($0.89 per share) in the same period in the previous year. The upswing in profit was the result of strong organic growth of Diageo’s strategic brands, increasing reach to the burgeoning middle class coupled with fast penetration of the company into emerging markets contributed to the positive results

Outlook

Analysts expect EPS to be higher in the coming two years on the back of margin expansion, lower tax rate and lower share count.

Currency Exchange Rate for 1H13: £1 = $1.59292

Currency Exchange Rate for 1H12: £1 = $1.59244

– The Online Stock Research Community

Discover what other investors are saying about Diageo Plc. at:

DEO profile on

|Research Analyst |Japamala Mukhopadhyay |

|Lead Analyst |Sneha Nahata |

|QCA |Kinjel Shah |

|Copy Editor | |

|Content Ed. | |

|No. of Broker reported/ Total No.| |

|of Brokers | |

|Reason for Update |Flash |

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May 8, 2013

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