Diageo Capital plc                                            

LEI: 213800L23DJLALFC4O95

Half-year results for the six months ended 31 December 2024

The Directors present their interim financial report for the six months ended 31 December 2024.

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 2024

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 2024 of Diageo plc (see note 16 of the consolidated financial statements of Diageo plc).

Net finance income was $81 million in the six months ended 31 December 2024, which is a $4 million increase from net finance income of $77 million in the six months ended 31 December 2023.

External borrowings decreased by $1,034 million in the six months ended 31 December 2024 to $8,504 million from $9,538 million in the year ended 30 June 2024, mainly due to two bond repaying during the period.

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.

$85 million profit was transferred to reserves in the six month ended 31 December 2024, (six months ended 31 December 2023 - $63 million) and the other comprehensive loss is $2 million (six months ended 31 December 2023 - $3 million income).

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 2024 (six months ended 31 December 2023 - $nil).

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 to provide financial support for a period of at least 12 months from the date the financial statements are approved and signed. 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 principal risks outlined below 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 2024

The principal risks identified by the group are disclosed on page 77 to 85 of the Diageo plc Annual Report 2024. 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 may be exposed to interest rate risk arising on changes in US dollar interest. The company may use derivative financial instruments to hedge its exposures to fluctuations in interest. Fair value hedges may be carried out to manage interest rate risks to which the fair value of certain assets and liabilities are exposed.

The Directors monitor and have assessed the potential risk of future interest rate hikes and resulting increase in cost of borrowing on the operation and the financial statements of the company. Considering the company forms part of the group's financial operations, it will be reimbursed for any potential increase in the charges of its financial instruments. Consequently any impact potentially materialising on this risk is considered to be very limited.

Geopolitical and macroeconomic volatility

Geopolitical forces, driven by several vectors globally, coupled with macroeconomic stress, increase the likelihood of international and domestic tensions, disputes, conflict, unrest, and crime that might impact the business. Macroeconomic conditions include inflationary pressures, unemployment and global trade tensions. Financial volatility risk could arise from variability in financial markets, interest rate fluctuations and currency instability. Failure to react quickly enough to changing economic and/or political conditions, e.g. inflationary pressures, currency instability, global trade tensions, heightened political protectionism, changes to customs duties and tariffs, and/or eroded consumer confidence, may impact on the freedom to operate in a market and could adversely impact financial performance.

The group monitors key business drivers and performance, to prepare for rapid changes in the external environment and there is an enhanced group-level strategic analysis and scenario planning to strengthen market strategies and risk management.

The group has continued to improve long-term forecasting and planning capabilities, to better assess and respond to long-term opportunities and risks. The group has also continued to operate the strategic planning and performance function with a stronger governance model for financial and non-financial decision-making. This will enable closer monitoring of external volatility/risk and multi-country investment strategy with central hedging and currency monitoring to manage volatility.

Cyber and IT resilience

Cyber-attacks are becoming more prevalent, and there is an increased dependency on third-party IT services and solutions. As geopolitical tensions are growing, there is a rise in more sophisticated cyber threats affecting all organisations, therefore the risk of a cyber-attack is heightened.

The group has strong enterprise-wide cyber risk management processes and policies and next generation security technologies to tackle advanced attacks. There is IT and Operations Technology ("OT") disaster recovery and business continuity testing across the key systems. The group continues to enhance and deploy next generation security technologies to tackle advanced attacks and upgrade the enterprise resource planning system and associated processes to ensure they remain resilient.

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 risk assessment and risk management measures in relation to climate change is disclosed on pages 61-76 and 78 of Diageo plc's 2024 Annual Report.

Business transformation

There is a group strategic initiative in respect of business transformation through the implementation of SAP S/4 HANA, where delays or changes in expected benefits may have an adverse impact on business processes or on the group's operating and financial performance. 

To mitigate this risk, the business transformation project has steering groups in place led by a senior executive and regular progress updates are provided to the Executive Committee and Board.

The group has hired additional employees fully dedicated to the projects and external consultants and partners who also bring in new skills, which includes a a focus on process improvement, business resilience and controls.

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 2024 Annual Report and Accounts on page 9 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.

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.

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.

Main activities of the Board

The principal activities of the Board during the year include:

•     Approval of the financial statements for the year ended 30 June 2024.

Business Relationship Statement

The business of the Company is that of an intermediate holding company and as such it has a more limited number of third-party business relationships than other companies within the Group.  However, in order to ensure consistency in how the Group operates, the Company 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, including those in a business relationship with the Company, in a consistent manner.  Decisions taken by Directors are informed by the interests of its wider stakeholders, including those in a business relationship with the Company, as guided by, amongst other things, the Code of Business Conduct and framework of polices and standards.

On behalf of the Board

J M C Edmunds

Director

11 Lochside Place
Edinburgh
Scotland
EH12 9HA

26 March 2025

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 2024.

James Edmunds

Director

26 March 2025

INCOME STATEMENT (UNAUDITED)

STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

BALANCE SHEET (UNAUDITED)

 STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY

 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 2024 were authorised for issue in accordance with a resolution of the Directors on 31 March 2025.

 Basis of preparation

The annual report and financial statements of the company for the year ended 30 June 2024 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 2024 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 2024.

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 2024.

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 2024 were approved by the Directors of the company on 29 October 2024 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 US dollar ($), which is the company's functional currency. 

All financial information presented in US dollar 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.

 NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) (continued)

1.   FINANCE INCOME AND CHARGES

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) (continued)

2.   TAXATION

The total tax credit for the six months ended 31 December 2024 was $1 million income (31 December 2023 - $6 million income), 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 $47 millions (30 June 2024 - $51 millions).

Bonds are reported at amortised cost with a fair value adjustment shown separately. These fair value adjustments are determined using discounted cash flow method based on observable market input (Level 2). All bonds, medium-term notes and commercial paper issued by the company are fully and unconditionally guaranteed by Diageo plc.

 NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) (continued)

  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.

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 2024.

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

5.   TRADE AND OTHER RECEIVABLES

Amounts owed by fellow group undertakings represent transactions with companies in the group with which the company has a long-term financing relationship. These financing relationships are expected to continue for the foreseeable future. Certain amounts owed by fellow group undertakings are repayable on demand, but reclassified to non-current assets as they are not expected to be repaid in the foreseeable future. Amounts owed by group undertakings are considered to have a fair value which is not materially different to the book value. Expected credit loss is immaterial for amounts owed by fellow group undertakings.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED) (continued)

 6.   TRADE AND OTHER CREDITORS

Amounts owed to fellow group undertakings represent transactions with companies in the group with which the company has a long-term financing relationship. These financing relationships are expected to continue for the foreseeable future. Amounts owed to group undertakings are considered to have a fair value which is not materially different to the book value.