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Reporting centre
Annual Report 2018

Annual Report Snapshot 2018

Introduction

Watch a brief introduction from Ivan and Javier. You can download their full statements above.

Annual Report Snapshot 2018

Performance Highlights

Volume

Equivalent Units (EU)

Year 2018 2017
Volume 240.4m 242.2m

0.7% Reported movement

2.5% Organic movement

 

Net sales1

Year 2018 2017
Net sales 12163 12050

0.9% Reported movement

5.0% Organic movement

Operating profit

Year 2018 2017
Volume 3691 3559

3.7% Reported movement

7.6% Organic movement

 

Net cash from operating activities

Year 2018 2017
Volume 3084 3132

2018 decrease of £48m

2018 free cash flow2 £2,523m £140m

Earnings per share (eps)

Year 2018 2017
EPS 121.7 106.0

14.8% Reported movement 

Eps before exceptional items movement2 9.3%

Total recommended dividend per share3

Year 2018 2017
Dividend 65.3 62.2

5%

 

 

1 Net sales are sales less excise duties. 
2 See definitions and reconciliations on page 56 and 61.
3 Includes recommended final dividend of 40.4p.

Alcohol in society programmes

Year 2018 2017
Volume 225 264

Number of responsible drinking programmes

Health and safety
 

Year 2018 2017
Volume 1.00  1.14

Lost-time accident frequency 1

Water efficiency
 

Year 2018 2017
Voume 4.94 4.98

Ratio of the amount of water required to produce one litre of packaged product. 2

 

 

1 Per 1,000 full-time employees.
2 Data for the year ended 30 June 2017 has been restated in accordance with Diageo's environmental reporting methodologies.
Within PwC's independent limited assurance scope. For further detail and the reporting methodologies, see our Sustainability & Responsibility Performance Addendum 2018.

 

Volume

EU 48.2m

Equivalent units

Net sales i

£ 4,116m

Operating profit ii

£ 1,882m

Share of net sales

34%

Share of volume

20%

 
  1. Excluding corporate net sales of £52 million.
  2. Excluding exceptional operating charges of £128 million (2017 – £42 million) and net corporate operating costs of £158 million (2017 – £189 million).

Volume

EU 46.3m

Equivalent units

Net sales i

£ 2,932m

Operating profit ii

£ 1,028m

Share of net sales

24.2%

Share of volume

19.3%

 
  1. Excluding corporate net sales of £52 million.
  2. Excluding exceptional operating charges of £128 million (2017 – £42 million) and net corporate operating costs of £158 million (2017 – £189 million).

Volume

EU 33.2m

Equivalent units

Net sales i

£ 1,491m

Operating profit ii

£ 191m

Share of net sales

12.3%

Share of volume

13.8%

 
  1. Excluding corporate net sales of £52 million.
  2. Excluding exceptional operating charges of £128 million (2017 – £42 million) and net corporate operating costs of £158 million (2017 – £189 million).

Volume

EU 22.2m

Equivalent units

Net sales i

£ 1,069m

Operating profit ii

£ 308m

Share of net sales

8.8%

Share of volume

9.2%

 
  1. Excluding corporate net sales of £52 million.
  2. Excluding exceptional operating charges of £128 million (2017 – £42 million) and net corporate operating costs of £158 million (2017 – £189 million).

Volume

EU 90.5m

Equivalent units

Net sales i

£ 2,503m

Operating profit ii

£ 568m

Share of net sales

20.7%

Share of volume

37.7%

 
  1. Excluding corporate net sales of £52 million.
  2. Excluding exceptional operating charges of £128 million (2017 – £42 million) and net corporate operating costs of £158 million (2017 – £189 million).

Annual Report Snapshot 2018

Business overview

Diageo is a global leader in beverage alcohol with a portfolio of iconic spirits and beer brands.

We have a broad portfolio across categories and price points and our products are available in more than 180 countries. Our portfolio and geographic reach enable us to deliver sustainable performance and create value for our shareholders.

The consumer is at the heart of our business. Using world-class marketing and innovation skills, we aim to build and sustain strong brands that play a positive role in society.

Our organisation is structured in a market-based model. This means we have greater agility and can better apply our strategy in individual countries to meet the diverse needs of our consumers and customers. It also enables us to quickly identify and act on consumer trends to support growth.

We use our local and global market expertise to identify and deliver against the most valuable growth opportunities.

Our global supply capabilities enable us to manufacture and distribute our brands efficiently and effectively. Where it makes sense to do so, we source and produce locally.

We are passionate about our role in society and the responsibility we have to our stakeholders, communities and the environment.

We make

We are the makers of premium spirits and beer, committed to the highest quality and standards.

We innovate

Led by consumer insights, we unlock new opportunities to recruit and re-recruit consumers to our brands. We innovate with new offerings that meet changing consumer demands.

We market

We invest in world-class marketing to responsibly build aspirational brands that resonate with our consumers.

We sell

We extend our sales reach through leading activations and advocacy to ensure our brands are part of consumer celebrations around the world.

The global spirits category has shown resilient, long-term growth. This is being driven by population and income growth, and the increasing penetration of spirits around the world.

Our strategy is to support premiumisation in developed and emerging countries. Our broad portfolio means we can access different consumer occasions with our brands, across price points.

In developed markets, we support premiumisation through our premium core and reserve brands. These enable consumers to trade up into luxury categories.

In emerging markets, we aim to grow participation in international premium spirits. To support this, we participate in mainstream spirits so consumers can access our brands at affordable price points. This also enables us to shape responsible drinking trends in markets where international premium spirits is an emerging category.

We have a global beer business, led by our premium brand Guinness. Beer is our second largest category after scotch. We have a large beer business in Africa with a portfolio that reaches across price points.

Everywhere we operate, we aim to do so in a responsible and sustainable way.

Consumer behaviour and the occasions on which people choose to drink alcohol are constantly evolving; as are regulatory environments and stakeholder expectations. We have a strong platform to seize new opportunities and unlock growth in our markets. This is based on our diverse portfolio, geographic footprint, business model and commitment to creating a positive role for alcohol and our business in society.

The global alcohol market: broad based, growing and profitable

Consumers want to drink better, not more

Consumers in developed markets are seeking to drink better, not more. They are increasingly interested in trying new brands and categories, and are prepared to pay more for products of superior quality, craftsmanship and provenance. Our premium core and reserve portfolios cater to this trend. Brands such as Johnnie Walker offer a ladder to increasing luxury through price, liquid age and provenance. In emerging markets, increasing wealth means consumers are also seeking to ‘trade up’ into international spirits brands. This trend provides an opportunity to offer international premium spirits, such as Johnnie Walker Black Label, to consumers. The world’s informal alcohol market accounts for 25% of alcohol sales globally, with emerging markets accounting for a large proportion of this. Informal alcohol poses risks to consumer health and negatively impacts tax revenues. Our mainstream spirits, such as McDowell’s No. 1 in India and Smirnoff X1 in Nigeria (more on page 17), provide safer products at affordable price points.

Balanced lifestyles

Consumers across markets are demanding a broader range of products that cater to different occasions and lifestyles. Based on our insights, we are innovating and investing in our brands to ensure we can meet consumer expectations. This year, in the United States we launched Ketel One Botanicals, which has a 30% ABV, no carbohydrates, no artificial flavours and sweeteners and no added sugars. We also launched Guinness Open Gate Pure Brew in Ireland. Pure Brew is a 0.5% alcohol by volume (ABV) lager. In June, we launched Gordon’s Ultra Low Alcohol Gin and Tonic flavoured drink in Great Britain, Spain, Belgium, Sweden and the Netherlands. Gordon’s Ultra Low Alcohol has less than 0.5% ABV and 68 calories per serve.

Consumers are socialising differently

Through data and insights, we have identified a shift from late-night drinking to more casual occasions that often include food and an increase in new types of consumption occasions, such as festivals. The rise of the aperitif occasion also reflects this trend. In 2018, we acquired Belsazar, a premium vermouth aperitif. Belsazar is the first brand to graduate from Distill Ventures (DV), our externally managed accelerator programme. DV builds on our skills and knowledge to support entrepreneurs in the development and financing of new brands. In addition to our own innovation, DV seeks to tap into new and emerging categories.

Continuing geopolitical uncertainty

The global economy continues to be subject to political instability and changes in economic variables. Our global scale and broad portfolio of brands help provide a natural hedge. Our market-based model also enables us to identify and respond quickly to local dynamics. Consumers are able to trade up or down depending on the economic environment. As a result, macro-economic trends are key considerations for our risk planning, outlined on pages 20-21.

Annual Report Snapshot 2018

In Society

We want to build on our brands’ connections with consumers to achieve greater positive social impacts, such as promoting moderate drinking and encouraging inclusivity. We also want to enhance the direct economic value our products already create. And we want to do this while reducing the environmental impacts involved in making our brands.

In 2015, we set ourselves ambitious targets for 2020. We have met our safety target two years early – less than one lost-time accident per 1,000 employees and no work-related fatalities. We made good progress with our human rights impact assessments bringing our total to 12 countries assessed since 2015. Progress against some of our environmental targets has slowed, but we are still committed to them. This year we updated our alcohol in society targets for 2025.

Download the Sustainability & Responsibility review here.

Sustainability & Responsibility case studies

We want the millions of people who choose to enjoy our brands to ‘drink better, not more’. This year, we continued to concentrate our efforts on responsible drinking programmes that deliver the biggest impact, thereby supporting fewer programmes. We evaluated the effectiveness of our programmes in 89% of our top 18 countries.

Our targets for reducing alcohol-related harm have driven performance across our programmes – for example, in September 2017 we surpassed our 2020 target of reaching one million adults with training materials that enable them to become responsible drinking (RD) ambassadors. This year we updated our targets for 2025 which will help us go even further to deliver impact where it is needed. We will begin reporting against our 2025 targets next year.

Targets for 2025

Download the alcohol in society section here.

Alcohol in society case studies

Supporting our employees and the communities where we live and work is one of our biggest opportunities to create value, and this year we continued to make good progress against all our 2020 targets, for our people, our suppliers and our local communities. Highlights include meeting our safety target two years early, and making good progress with our human rights impact assessments, with assessments carried out in Tanzania, Guatemala, the UK, India and Colombia this year.

We supported more than 80,000 smallholder farmers in Africa, and continued to increase the percentage of agricultural materials sourced locally in Africa to 78% against our 80% target. We invested £12 million or 0.3% of operating profit in programmes to support the communities where we source, make and sell our products, as shown in the highlights below.

Our targets are ambitious; designed to drive performance that achieves real impact while making our business more resilient, including to the effects of climate change. Many of our environmental targets commit us to achieving absolute reductions in our impact, rather than relative reductions.

After many years of cumulative progress in areas such as carbon emissions reduction and water efficiency improvements, progress against some of our environmental targets slowed in 2018. In part this is because, as we get closer to 2020, delivering further improvements becomes more complex, and in some markets it has taken longer to implement projects than we expected.

Nonetheless, we are committed to the targets, which are driving the right approach, and we have identified future environmental investments that will help us progress toward 2020.

Download the environment section here.

Environment case studies

Annual Report Snapshot 2018

Downloads

Annual Report 2018

Annual Report 2018

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Sustainability & Responsibility Performance Addendum 2018

Sustainability & Responsibility Performance Addendum 2018

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