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Annual Report 2020
Annual Report 2020
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Sustainability & Responsibility Performance Addendum 2020
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From purpose to performance
We are determined to build a company that will prosper over the very long term. As a global company we have an important role to play in ensuring the communities we are part of thrive. We want to deliver consistent performance and have a positive impact where we live, work, source and sell.
We are a company built and sustained through innovation, creating new products, categories and experiences for consumers. We are the stewards of iconic, purpose-led brands created by entrepreneurs like John Walker, Charles Tanqueray and Arthur Guinness. Today, we stand on the shoulders of these giants and act with the same entrepreneurial spirit and determination.
"Covid-19 has vividly demonstrated that governments, businesses and communities must work together to build more resilient societies, better able to withstand major social and economic shocks. I am very proud of the way our people responded when they were truly tested this year. Together, we will enable Diageo and the communities in which we live and work to emerge stronger from this pandemic."
Ivan Menezes
Chief Executive
"We are determined to build Diageo for the very long term and we seek to make a positive impact on the issues that matter most to our stakeholders and to wider society. During Covid-19 we have been closely tracking and adapting to consumer behaviour and have taken swift action ranging from strengthening our financial liquidity to re-prioritising our investment plans."
Javier Ferrán
Chairman
Volume
Equivalent Units (EU)
Reported movement 11.8%
Organic movement 11.2%
Operating profit
Reported movement 47.1%
Organic movement 14.4%
Earnings per share (eps)
Reported movement 54.0%
Eps before exceptional items movement(i) 16.4%
Net sales(ii)
Reported movement 8.7%
Organic movement 8.4%
Net cash from operating activities
2020 decrease of £928m
2020 free cash flow(i) £1,634m
Total recommended dividend per share(iii)
2%
(i) See definitions and reconciliation of non-GAAP measures to GAAP measures on pages 62-67 of the Annual Report.
(ii) Net sales are sales less excise duties.
(iii) Includes recommended final dividend of 42.47p for both 2019 and 2020.
Positive drinking(iv)
Number of people reached (millions) with moderation messages from our brands
Health and safety
Lost-time accident frequency(v)
Water efficiency(vi)
(iv) Our 2020 number reflects the cumulative progress against our target from the 2019 and 2020 fiscal years.
(v) Per 1,000 full-time employees.
(vi) Data for the year ended 30 June 2019 has been restated where relevant in accordance with Diageo’s environmental reporting methodologies.
∆ Within PwC's LLP's independent limited assurance scope. For further detail and the reporting methodologies, see our Sustainability & Responsibility Performance Addendum 2020.
Volume (EU)(i)
48.4m
Net sales
£ 4,623m
Operating profit(ii)
£ 2,034m
Share of group net sales
39.5%
Share of group volume
22.3%
(i) Equivalent Units
(ii) Operating profit is operating profit before exceptionals. Total Diageo operating profit excludes exceptional operating charges of £1,357 million (2019: £74 million) and net corporate operating costs of £147 million (2019: £189 million).
Total Diageo net sales excludes corporate net sales of £38 million.
The map above is intended to illustrate general geographic regions of the world where Diageo has a presence and/or in which its products are sold. It is not intended to imply that Diageo has a presence in and/or that its products are sold in every country within a geographical region.
Volume (EU)(i)
40.2m
Net sales
£ 2,567m
Operating profit(ii)
£ 757m
Share of group net sales
21.9%
Share of group volume
18.5%
(i) Equivalent Units
(ii) Operating profit is operating profit before exceptionals. Total Diageo operating profit excludes exceptional operating charges of £1,357 million (2019: £74 million) and net corporate operating costs of £147 million (2019: £189 million).
Total Diageo net sales excludes corporate net sales of £38 million.
The map above is intended to illustrate general geographic regions of the world where Diageo has a presence and/or in which its products are sold. It is not intended to imply that Diageo has a presence in and/or that its products are sold in every country within a geographical region.
Volume (EU)(i)
28.8m
Net sales
£ 1,346m
Operating profit(ii)
£101m
Share of group net sales
11.5%
Share of group volume
13.3%
(i) Equivalent Units
(ii) Operating profit is operating profit before exceptionals. Total Diageo operating profit excludes exceptional operating charges of £1,357 million (2019: £74 million) and net corporate operating costs of £147 million (2019: £189 million).
Total Diageo net sales excludes corporate net sales of £38 million.
The map above is intended to illustrate general geographic regions of the world where Diageo has a presence and/or in which its products are sold. It is not intended to imply that Diageo has a presence in and/or that its products are sold in every country within a geographical region.
Volume (EU)(i)
19.0m
Net sales
£ 908m
Operating profit(ii)
£ 248m
Share of group net sales
7.8%
Share of group volume
8.8%
(i) Equivalent Units
(ii) Operating profit is operating profit before exceptionals. Total Diageo operating profit excludes exceptional operating charges of £1,357 million (2019: £74 million) and net corporate operating costs of £147 million (2019: £189 million).
Total Diageo net sales excludes corporate net sales of £38 million.
The map above is intended to illustrate general geographic regions of the world where Diageo has a presence and/or in which its products are sold. It is not intended to imply that Diageo has a presence in and/or that its products are sold in every country within a geographical region.
Volume (EU)(i)
80.6m
Net sales
£ 2,270m
Operating profit(ii)
£ 501m
Share of group net sales
19.3%
Share of group volume
37.1%
(i) Equivalent Units
(ii) Operating profit is operating profit before exceptionals. Total Diageo operating profit excludes exceptional operating charges of £1,357 million (2019: £74 million) and net corporate operating costs of £147 million (2019: £189 million).
Total Diageo net sales excludes corporate net sales of £38 million.
The map above is intended to illustrate general geographic regions of the world where Diageo has a presence and/or in which its products are sold. It is not intended to imply that Diageo has a presence in and/or that its products are sold in every country within a geographical region.
Creating a truly sustainable business for the very long term
We deliver our strategic priorities through a business model that leverages global and local expertise, has the consumer at its heart and puts our responsibilities to our stakeholders front and centre.
What sets us apart
Our brand portfolio and geographic footprint
Our leading brand portfolio offers consumers a broad range of products across categories and price points. We have extensive operations in the United States and Europe, as well as leading positions in many of the markets that are expected to contribute most to medium-term industry growth.
Our track record in innovation and brand building
We innovate across centuries-old brands such as Johnnie Walker, Tanqueray and Guinness and we develop and grow new brands like Bulleit and Roe & Co. We use our archives, two of the largest and most comprehensive in the drinks industry, to provide a rich source of inspiration for our brands.
Our relationships with the trade
Diageo Reserve World Class™ discovers the next generation of bartending talent, who set the latest mixology trends and bring these to the best bars worldwide. Since its launch in 2009, we have created a network of relationships with bartenders, customers and distributors that provides us with a unique route to our consumers.
Our expertise in distillation and brewing
Our supply chain teams are the guardians of our brands’ quality and craftsmanship. Their skills and experience range from the craft of barrel-making and coppersmithing, to blending scotch, brewing premium beer, designing packaging and ensuring our complex modern supply operations are working to the highest standards.
27,775
Employees
200+
Brands
180+
Countries
150+
Sites
Ensuring a continuous dialogue
We aim to maintain open and positive dialogue with all our stakeholders, considering their key interests and communicating with them on a regular basis. This helps us build trust and respect and make choices as a business that help shape the role we play in society. Our purpose and values help guide our engagement around the world.
Total beverage alcohol is an attractive industry with a natural runway for sustainable growth
Drinking occasions and practices vary depending on local culture and traditions. We believe that drinking in a responsible way can be part of a balanced lifestyle in many societies around the world.
£854bn
retail sales value of global alcohol market(i)
6bn
equivalent units of alcohol sold each year(ii)
600m
new legal purchase age consumers expected to enter the market by 2030(iii)
Within this context our markets are shaped by evolving consumer preferences, the regulatory environment and wider economic, cultural and social trends:
- Consumers want to 'drink better'
- Consumers are increasingly choosing spirits
- An emerging middle class who can afford international-style spirits
- Consumers are changing how they socialise
- Consumers are changing how they buy
- A complex regulatory environment
Notwithstanding Covid-19, the long-term trends for our industry remain extremely attractive.
(i), (ii) IWSR, 2019
(iii) World Bank, 2020
Delivering our Performance Ambition
Our strategic priorities support the achievement of our ambition to be one of the best performing, most trusted and respected consumer products companies in the world. Through our priorities, we deliver the strategic outcomes against which we measure our performance.
Sustain quality growth
Creating sustainable and consistent quality growth is at the heart of our ambition to be ‘one of the best performing’. It enables us to invest in our business, grow our margins and deliver top-tier total shareholder returns.
We focus on six key elements to help us sustain quality growth:
- Grow volume, price and mix
- Execute the most effective route to consumer
- Build brand equity
- Innovate sustainably
- Grow next generation brands
- Enable a positive policy environment
Embed everyday efficiency
Everyday efficiency creates the fuel that allows us to invest smartly and sustain quality growth. At its heart, everyday efficiency is a mindset and a culture, which everyone in Diageo is encouraged to bring to life in their daily work.
We focus on three key elements to help embed everyday efficiency:
- Simplifying the business, injecting speed into what we do
- Focusing resources on delighting customers and consumers
- Unleashing technology, including data and analytics, on our processes to drive efficiency and insights
Invest smartly
We are investing in the future success of our business – but that investment needs to be ‘smart’ to support the delivery of consistent performance and enable sustainable, quality growth.
We focus on five key elements to help us invest smartly:
- Invest to grow and develop our people
- Acquire attractive new brands
- Spend more on A&P, more effectively and efficiently
- Build capabilities in technology, data and e-commerce
- Support growth with the right capital investment
Promote positive drinking
We want to change the way the world drinks for the better, by promoting moderation and addressing the harmful use of alcohol. Our goal is for people to ‘drink better, not more’ – because we are proud of our brands and we know that the best way for them to be enjoyed is responsibly.
Our goals for positive drinking:
- Change the way the world drinks for the better
- Lead the industry in reducing underage drinking, drink driving and heavy drinking
- Empower our people and brands to advocate moderation
Alignment to UN SDGs
Champion inclusion and diversity
Our Performance Ambition is fuelled by our purpose and values. It drives us to create an inclusive culture where every individual can thrive and to champion inclusion and diversity in our business and in society more broadly.
Key elements of our approach:
- Foster the creation of an inclusive culture
- Promote equality of experience for all employees
- Champion inclusion and diversity beyond our business
Alignment to UN SDGs
Pioneer grain-to-glass sustainability
For our business to be sustainable, it needs to create enduring value – for us and for those around us. We must positively impact the communities in which we live, work, source and sell and protect the natural resources on which we all depend.
Key elements of our approach:
- Support thriving communities where we live, work, source and sell
- Build sustainable, resilient supply chains
- Champion water stewardship and a low carbon world
- Minimise waste and develop circular economy solutions
Alignment to UN SDGs
Doing the right thing, in the right way, is the foundation of our business. That means embedding respect for human rights into the way we work, every day, everywhere. We consider health and safety as a fundamental human right - and the health, safety and wellbeing of our employees is our highest priority.
Making respect for human rights everyone's business
Respect for human rights should be a part of everyone’s working day, as enshrined in our Code of Business Conduct. We are continuing to embed human rights into every function of our business, in every country, as part of our commitment to the UN Guiding Principles on Business and Human Rights (UNGP), which we signed in 2014.
Health and safety
Our global Health and Safety strategy aims to address the wellbeing and safety of our people. At its heart is our global Zero Harm programme, which is designed to ensure that everyone goes home safe and healthy, every day, everywhere.
Non-financial information statement
| Focus area | Relevant policies and standards |
| Positive drinking | |
| Our employees | |
| Grain-to-glass sustainability | |
| Human rights | |
| Health and safety | |
| Anti-bribery and corruption |
Responding to climate-related risks
We are committed to combating climate change and water challenges by decarbonising our value chain, implementing adaptation measures and acting as champions for water stewardship around the world.
As well as being the right thing to do, this helps us protect our business as part of our wider approach to mitigating and adapting to climate-related risks.
Our strategy is supported by a comprehensive set of targets that help us drive, measure and report transparently on our progress. In 2015, we set a range of environmental and social targets for 2020 and we have since set additional targets in areas including renewable electricity and plastic packaging.
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