Diageo Plc · LSE:DGE
Diageo — H1 F19 Earnings Presentation
38 slides from Diageo's earnings presentation, February 2019
Slide 1: Diageo Interim Results, Six Months Ended 31 December 2018
DIAGEO INTERIM RESULTS SIX MONTHS ENDED 31 DECEMBER 2018 1
Slide 2: Consistent Delivery of Strong Results
CONSISTENT DELIVERY OF STRONG RESULTS Reflecting our ambition to be one of the best performing, most trusted and respected consumer products companies in the world Delivering through our six priorities with clear goals defined by our Performance Ambition Four measures of our progress • efficient gro
Slide 3: Consistent Delivery of Strong Results
CONSISTENT DELIVERY OF STRONG RESULTS Organic volume 3.5%. Organic net sales 7.5%* ✓ Organic operating margin expansion 152bps ✓ Consistent strong cash delivery: Free cash flow £1.3bn ✓ Eps pre-exceptionals up 14% ✓ Returned £1.3bn to shareholders through share buyback and increasing F19 full year s
Slide 4: Delivering Consistent Efficient Growth and Value Creation
DELIVERING CONSISTENT EFFICIENT GROWTH AND VALUE CREATION Sustainable organic topline Productivity programme, fueling Strong free cash flow performance increased investment and driving margin improvement 7.5% £1.3bn £1.1bn £1.0bn Organic +115 +152 5.0% bps bps £0.8bn Mid-single operating £0.7bn digi
Slide 5: Delivering Consistent Efficient Growth and Value Creation
DELIVERING CONSISTENT EFFICIENT GROWTH AND VALUE CREATION Shareholder Returns: Portfolio Management Buybacks and Dividend Total Shareholder Return and M&A £6.9bn returned to 23% Acquisitions shareholders F17 to date F19 H1 Share buyback £1.3bn 17% Dividend £1.0bn At least 5% DPS growth p.a. since F1
Slide 6: Another Set of Strong Consistent Results
ANOTHER SET OF STRONG CONSISTENT RESULTS Efficient growth: F19 H1 Organic net sales growth 7.5% Organic operating margin improvement +152bps Free cash flow £1.3bn Pre-exceptional eps up 13.6% to 77p Value creation: ROIC up 135bps to 17.8% Total Shareholder Return up 4% 6
Slide 7: Reported Net Sales Up 5.8%, 7.5% Organic Growth
REPORTED NET SALES UP 5.8% 7.5% ORGANIC GROWTH Organic growth 252 6,908 224 6,530 -91 -7 F18 H1 Exchange Acquisitions Volume Price/mix F19 H1 and disposals 7
Slide 8: 7.5% Organic Net Sales Growth
7.5% ORGANIC NET SALES GROWTH Organic volume growth Price/Mix Organic net sales growth 7.5% 5.0% 4.3% 4.0% 3.5% 3.2% 2.5% 2.5% 1.1% F17 F18 F19 H1 8
Slide 9: Broad Based Organic Growth Across Our Categories
BROAD BASED ORGANIC GROWTH ACROSS OUR CATEGORIES Organic net sales growth 29% 28% 11% 7% 5% 4% 4% 3% 3% -3% Scotch Vodka Canadian US Rum Liqueurs IMFL Gin Tequila Beer Whisky Whiskey Whisky 9
Slide 10: Strong Performance Across Our Portfolio
STRONG PERFORMANCE ACROSS OUR PORTFOLIO Organic net sales growth 11% Global giants Johnnie Walker 10% Smirnoff 2% 6% 6% Captain Morgan -4% Baileys 3% Tanqueray 21% Guinness 4% Global Local Reserve giants stars 10
Slide 11: Reported Operating Profit Before Exceptional Items Up 12%
REPORTED OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS UP 12% ORGANIC OPERATING PROFIT UP 12% £m F19 H1 F18 H1 PRIOR PERIOD OPERATING PROFIT * 2,190 2,065 Exchange - (15) Acquisitions & Disposals (3) 2 Organic growth 264 138 CURRENT PERIOD OPERATING PROFIT * 2,451 2,190 Reported operating Exchange Acqui
Slide 12: Organic Operating Margin Up 152 bps
ORGANIC OPERATING MARGIN UP 152 BPS Movement in organic operating margin 128bps 35.2% 50bps 33.7% -26bps H1 F18 Gross margin Marketing Other H1 F19 operating items 12
Slide 13: Consistent Strong Free Cash Flow Delivery, Up £317 Million
CONSISTENT STRONG FREE CASH FLOW DELIVERY, UP £317 MILLION 283 23 15 1,346 179 -126 1,029 0 -57 H1 F18 Exchange (i) Operating Working Capex Tax Interest Other (iii) H1 F19 profit (ii) capital (i) Exchange on operating profit before exceptional items (ii) Operating profit excluding exchange, deprecia
Slide 14: Improved Cost of Debt Supported by Favourable Funding Terms
IMPROVED COST OF DEBT SUPPORTED BY FAVOURABLE FUNDING TERMS F19 H1 F18 H1 Movement Closing net debt* £m (10,352) (9,198) (1,154) Average net debt* £m (10,183) (8,819) (1,364) Net interest charge £m (120) (130) 10 Net other finance charges £m (8) (24) 16 Net finance charges £m (128) (154) 26 Effectiv
Slide 15: A Disciplined Approach to Capital Structure
A DISCIPLINED APPROACH TO CAPITAL STRUCTURE Leverage policy Adjusted Net Debt* to EBITDA: 2.5x – 3.0x Organic growth Dividends – 1.8x to M&A and portfolio 2.2x dividend cover management Return excess cash to shareholders * Net debt is equivalent to net borrowings. Adjusted net debt includes post emp
Slide 16: F19 Exchange Impact Forecast to Be Favourable
F19 EXCHANGE IMPACT FORECAST TO BE FAVOURABLE FOR BOTH OPERATING PROFIT AND NET SALES Exchange rates Total Exchange Impact Translation rate F18* F19 F19 F19 H1** forecast *** £m F18 F19 H1 forecast $/£ 1.35 1.29 1.31 Net Sales (454) (91) (80) €/£ 1.13 1.12 1.14 * Average rate **Average rate Jul-Dec
Slide 17: Basic EPS Decreased 1.6%, EPS Before Exceptional Items Up 13.6%
BASIC EPS DECREASED 1.6% EPS BEFORE EXCEPTIONAL ITEMS UP 13.6% Pence per share F18 H1 eps before exceptional items 67.8 Exchange 0.1 Organic operating profit growth 10.4 Associates and joint ventures 0.4 Tax (4.0) Finance charges 2.2 Non-controlling interest (0.9) Share buy-back 1.1 Other (0.1) F19
Slide 18: Another Set of Strong Consistent Results
ANOTHER SET OF STRONG CONSISTENT RESULTS Efficient growth: F19 H1 Organic net sales growth 7.5% Organic operating margin improvement +152bps Free cash flow £1.3bn Pre-exceptional eps up 13.6% to 77p Value creation: ROIC up 135bps to 17.8% Total Shareholder Return up 4% 18
Slide 19: Consistent Delivery of Strong Results
CONSISTENT DELIVERY OF STRONG RESULTS Reflecting our ambition to be one of the best performing, most trusted and respected consumer products companies in the world Delivering through our six priorities with clear goals defined by our Performance Ambition Four measures of our progress • efficient gro
Slide 20: Most Trusted and Respected
MOST TRUSTED AND RESPECTED Ranked #4 in Top 100 Globally listed companies 20
Slide 21: A Clear Strategy Delivered Through Our Six Priorities
A CLEAR STRATEGY DELIVERED THROUGH OUR SIX PRIORITIES 1 Keep premium core vibrant 2 Increase participation in mainstream spirits 3 Continue to win in reserve 4 Drive innovation at scale 5 Build advantaged routes to consumer 6 Embed productivity in our culture to drive out costs to invest in growth 2
Slide 22: Keeping Premium Core Vibrant: Guinness
KEEPING PREMIUM CORE VIBRANT: GUINNESS RUGBY 6 nations sponsorship Organic net sales growth Pan-Africa football campaign 6% 4% 4% 2% Total Beer -2% F15* F16 F17 F18 F19 H1 5% 4% 4% 0% 0% Guinness Innovation US Guinness Open Gate Brewery *Excluding Orijin 22
Slide 23: Continue to Win in Reserve: World Class
CONTINUE TO WIN IN RESERVE: WORLD CLASS 23
Slide 24: Drive Innovation at Scale
DRIVE INNOVATION AT SCALE Recruit Re-recruit Disrupt 24
Slide 25: Improved Growth in the Three Focus Areas
IMPROVED GROWTH IN THE THREE FOCUS AREAS: ORGANIC NET SALES GROWTH Scotch 7.0% US Spirits 4.7% India 12.3% 25
Slide 26: F19 Focus Areas: Scotch Improved Broad Based Performance
F19 FOCUS AREAS: SCOTCH IMPROVED BROAD BASED PERFORMANCE Organic net sales growth 16.2% 10.0% 10.0% 7.0% 7.3% 7.1% 6.0% 5.4% 5.5% 4.7% 4.8% 1.9% 2.5% 1.2% (2.2)% (4.5)% (8.4)% (13.1)% Total Scotch Johnnie Buchanan’s Scotch Malts Primary Other Walker Scotch F17 F18 F19 H1 % of Scotch 58% 9% 12% 11% 1
Slide 27: F19 Focus Areas: Scotch
F19 FOCUS AREAS: SCOTCH CONNECTING CONSUMERS WITH SCOTCH 27 Four corners communications Recruiting new consumers Engaging consumers in retail
Slide 28: F19 Focus Areas: US Spirits Continued Performance Improvement
F19 FOCUS AREAS: US SPIRITS CONTINUED PERFORMANCE IMPROVEMENT Organic volume and net sales growth 4.7% 3.4% 3.3% 3.1% Volume 1.5% 1.3% Net sales 1.2% 1.2% (1.5)% (3.5)% F15* F16 F17 F18 F19 H1 * Excluding Wine 28
Slide 29: F19 Focus Areas: US Spirits Broad Based Category Share Gains
F19 FOCUS AREAS: US SPIRITS BROAD BASED CATEGORY SHARE GAINS Nielsen and NABCA combined value growth 41.2% 15.7% 34.3% 12.8% 21.4% 9.0% 8.6% 7.6% 7.3% 5.8% 5.1% 5.3% 5.4% 1.2% 1.3% (0.8)% -2.2% (1.0)% Core brands (7.1)% (6.1)% Crown Royal Johnnie Captain Baileys Smirnoff Cîroc Ketel One Don Julio Bu
Slide 30: F19 Focus Areas: India
F19 FOCUS AREAS: INDIA NET SALES UP 12%, MARGIN IMPROVEMENT AND INCREASED MARKETING INVESTMENT Prestige and above brands organic net India organic net sales growth sales growth 16.4% 20.5% 17.0% 12.3% 7.0% 5.6% 1.9% 2.3% F17 F18 H1 F18 H2 F19 H1 F17 F18 H1 F18 H2 F19 H1 30
Slide 31: Effective Execution of Our Strategy
EFFECTIVE EXECUTION OF OUR STRATEGY CONSISTENT DELIVERY OF STRONG RESULTS: Delivering our strategy Strong performance driven by a more agile, disciplined and high performing organisation Consistent top line growth, increased marketing investment and margin expansion enabled by productivity programme
Slide 32: Appendix 1: Forward Looking Statements 1/2
APPENDIX 1: 1/2 FORWARD LOOKING STATEMENTS Exchange rate outlook Using exchange rates £1 = $1.32; £1 = €1.16, the exchange rate movement for the year ending 30 June 2019 is estimated to adversely impact net sales by approximately £80 million and operating profit by approximately £10 million. Net sal
Slide 33: Appendix 1: Forward Looking Statements 2/2
APPENDIX 1: 2/2 FORWARD LOOKING STATEMENTS Taxation Our current expectation is that the tax rate before exceptional items for the year ending 30 June 2019 will be in the range of 21% to 22% which reflects changing business mix and the increased levels of uncertainty in the current tax environment fo
Slide 34: Appendix 2: Reconciliation of Cash Flow Statement
APPENDIX 2: RECONCILIATION OF CASH FLOW STATEMENT Reconciliation of free cash flow waterfall Statement of cash flows (£m) F18 H1 F19 H1 Movement Movement on OP as shown in YoY waterfall (£m) Operating profit after exceptional items 2,190 2,430 240 Operating profit after exceptional items 240 Increas
Slide 35: Cautionary Statement Concerning Forward-Looking Statements
Cautionary statement concerning forward-looking statements This document contains ‘forward-looking’ statements. These statements can be identified by the fact that they do not relate only to historical or current facts. In particular, forward-looking statements include all statements that express fo
Slide 36: Cautionary Statement (continued)
(continued from previous page) • changes in the cost of production, including as a result of increases in the cost of commodities, labour and/or energy or as a result of inflation; • legal and regulatory developments, including changes in regulations relating to production, distribution, importation
Slide 37: Cautionary Statement (continued)
(continued from previous page) We have further considered the principal impact to our supply chain which we have assessed as limited and have appropriate stock levels in place to mitigate this risk. The full implications of Brexit will not be understood until future tariffs, trade, regulatory, tax,
Slide 38: Celebrating Life, Every Day, Everywhere
CELEBRATING LIFE, EVERY DAY, EVERYWHERE 38