Diageo plc – Half year report – 31 December 2018
Industry: food and drink
4. Finance income and charges
(a) Hyperinflation adjustment in respect of Venezuela
Venezuela is a hyper-inflationary economy where the government maintains a regime of strict currency controls with multiple foreign currency rate systems. Access to US dollars on these exchange systems is very limited. In March 2018 Venezuela’s President ordered a re-denomination of the ailing bolivar currency. The so called “Bolívar Soberano” (Sovereign Bolivar) was introduced from 20 August 2018 when 100,000 “Bolívar Fuerte“ (VEF) were redenominated as one Sovereign Bolivar. The foreign currency denominated transactions and balances of the group’s Venezuelan operations are translated into the local functional currency (VES) at the rate they are expected to be settled, applying the most appropriate official exchange rate. For consolidation purposes, the group converts its Venezuelan operations using management’s estimate of the exchange rate considering the inflation forecast and the most appropriate official exchange rate (DICOM). The exchange rate used to translate the results of the group’s Venezuelan operations was VES/GBP 10,466 for the six months ended 31 December 2018 (2017 -VEF/GBP 63,450 -VES/GBP 0.6345).
The following table presents the contribution of the group’s Venezuelan operations to the consolidated income statement, cash flow statement and net assets for the six months ended 31 December 2018 and with the amounts that would have resulted if the DICOM exchange rate had been applied for consolidation.