Diago Cp. 43 Regulatory News (36VY)

Diageo Capital plc

LEI: 213800L23DJLALFC4O95

Half-year results for the six months ended 31 December 2019

The directors present their interim financial report for the six months ended 31 December 2019.

Activities

Diageo Capital plc (the "company") is engaged in the provision of treasury, risk and cash management services 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 and transactional 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 2019

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 of Diageo plc for the year ended 30 June 2019 (see note 15 of the consolidated financial statements of Diageo plc).

Net finance charge was £33 million in the six months ended 31 December 2019, which is a £26 million increase from net finance charge of £7 million in the six months ended 31 December 2018.

External borrowings increased by £1,462 million in the six months ended 31 December 2019 to £6,068 million from £4,606 million in the year ended 30 June 2019, which was mainly due to the issuance of bonds and commercial papers in amount of £1,289 million and £407 million, respectively. The increase in balance of external borrowings was partially offset by the weakening of the USD versus GBP.

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.

The loss for the period transferred to reserves is £32 million (six months ended 31 December 2018 - loss of £6 million) and the other comprehensive loss for the six months ended is £8 million (six months ended 31 December 2018 - profit of £43 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 2019 (six months ended 31 December 2018 - £nil).

Going concern

The company is expected to remain in positive net asset position for the foreseeable future. The company participates in the group's centralised treasury arrangements and the parent and fellow group undertakings are expected to 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 group 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 the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Principal risks and uncertainties facing the company as at 31 December 2019

The company forms part of the group's treasury operations, which manage the group's funding, liquidity, interest rate and foreign exchange risks. (See detailed description under note 4. Financial instruments and risk management.) The principal risks and uncertainties facing the company are 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 and related risks

The process surrounding the United Kingdom's future trading relationship with the European Union continues. We remain of the view that, in the event of either a future free trade agreement (FTA) or a 'no FTA' outcome at the end of the implementation period between the UK and the EU, the direct financial impact to Diageo will not be material. The full implications of Brexit will not be understood until future trade, regulatory and tax arrangements to be entered into by the United Kingdom are established. Furthermore, we could experience changes to laws and regulations post Brexit, in areas such as intellectual property rights, employment, environment, supply chain logistics, data protection, and health and safety.

A cross-functional working group is in place that meets on a regular basis to identify and assess the consequences of Brexit, with all major functions within our business represented. We continue to monitor this risk area very closely, as well as the broader environment risks, 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. More specific details on the impact of Brexit are included in the 2020 interim results presentation and press release of Diageo plc which are publicly available.

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 2019.

M PaisDirector12 March 2020

INCOME STATEMENT (UNAUDITED)

FOR THE SIX MONTHS ENDED 31 DECEMBER 2019

STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE SIX MONTHS ENDED 31 DECEMBER 2019

BALANCE SHEET (UNAUDITED)

AT 31 DECEMBER 2019

STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED 31 DECEMBER 2019

ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) FOR THE SIX MONTHS ENDED 31 DECEMBER 2019

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 2019 were authorised for issue in accordance with a resolution of the directors on 12 March 2020.

Basis of preparation

The annual report and financial statements of the company for the year ended 30 June 2019 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 2019 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 2019.

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 2019.

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 2019 were approved by the directors of the company on 25 October 2019 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 (£), 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

2. TAXATION

The total tax income for the six months ended 31 December 2019 was £2 million (31 December 2018 - £nil), in accordance with decrease 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

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 £33 million (30 June 2019 - £29 million). The company issued new bonds in the six months period ended 31 December 2019, with a nominal value of US$ 600 million and US$ 1,000 million.

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.

The company's financial assets and liabilities measured at fair value are categorised as follows: