Diageo Plc · LSE:DGE
Diageo — H1 2020 Earnings Presentation
46 slides from Diageo's earnings presentation, Jan 30, 2020
Slide 1: Diageo Interim Results, Half Year Ended 31 December 2019
DIAGEO INTERIM RESULTS HALF YEAR ENDED 31 DECEMBER 2019
Slide 2: Consistent Delivery of Results
CONSISTENT DELIVERY OF 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 growth • V
Slide 3: Consistent Delivery of Results
CONSISTENT DELIVERY OF RESULTS Organic volume up 0.2%. Organic net sales up 4.2% Organic operating margin expansion 13bps in H1 F20 Free cash flow £ 0.97bn Eps pre-exceptionals up 4.2% Full year dividend up 5% to 27.4p Returned £1.1bn to shareholders through share buyback in H1 F20 3
Slide 4: Consistent Delivery of Results
CONSISTENT DELIVERY OF RESULTS EVERYDAY EFFICIENCY, FUELLING CONSISTENT & SOLID SUSTAINABLE ORGANIC INCREASED INVESTMENT AND FREE CASH FLOW TOPLINE PERFORMANCE % DRIVING MARGIN IMPROVEMENT FIRST HALF £bn 6.1 1.3 Mid- 5.0 1.1 single Organic +198 +13 1.0 digit 4.3 4.2 operating bps bps 1.0 4-6% margin
Slide 5: Creating Value for Shareholders
CREATING VALUE FOR SHAREHOLDERS PORTFOLIO MANAGEMENT DIVIDENDS TOTAL SHAREHOLDER RETURN AND M&A ACQUISITIONS 68.6 65.3 27% 62.2 59.2 56.4 23% 17% 12% Z Z 2% DISPOSALS Wines Bushmills Beer interests in Jamaica and Malaysia (4)% F15 F16 F17 F18 F19 Gleneagles F15 F16 F17 F18 F19 F20 Portfolio of 19 br
Slide 6: A Consistent Set of Results
A CONSISTENT SET OF RESULTS Efficient growth: F20 H1 Organic net sales growth 4.2% Organic operating margin improvement +13bps Free cash flow £966m Pre-exceptional eps 80.2p up 4.2% Value creation: ROIC 17.5% down 33bps Total Shareholder Return 4% down 6
Slide 7: Reported Net Sales Up 4.2%, Organic Growth Up 4.2%
REPORTED NET SALES UP 4.2% ORGANIC GROWTH UP 4.2% Organic growth £ million 275 7,200 52 6,908 11 (46) F19 H1 Exchange Acquisitions Volume Price/mix F20 H1 and 7 disposals
Slide 8: 4.2% Organic Net Sales Growth
4.2% ORGANIC NET SALES GROWTH Organic volume growth Price/mix Organic net sales growth 6.1% 5.0% 4.0% 4.2% 3.8% 2.5% 2.3% 2.5% 0.2% F18 F19 F20 H1 8
Slide 9: Broad Based Organic Growth Across Our Categories
BROAD BASED ORGANIC GROWTH ACROSS OUR CATEGORIES Organic net sales growth 31% 11% 7% 7% 6% 3% 2% 2% 0% (1)% Scotch Vodka* Canadian US Rum Liqueurs IMFL Gin Tequila Beer Whisky Whiskey Whisky * Vodka includes Ketel One Botanical 9
Slide 10: Broad Based Performance Across Our Portfolio
BROAD BASED PERFORMANCE ACROSS OUR PORTFOLIO Organic net sales growth* 11% Global giants Johnnie Walker (4)% 8% Smirnoff 1% Captain Morgan 5% Baileys 8% Tanqueray 13% 1% Guinness 1% Global Local Reserve *Spirits brands excluding ready to drink giants stars 10
Slide 11: Reported Operating Profit Up 2.0%, Organic Operating Profit Up 4.6%
REPORTED OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS UP 2.0% ORGANIC OPERATING PROFIT UP 4.6% £m F20 H1 F19 H1 PRIOR PERIOD OPERATING PROFIT * 2,451 2,190 Exchange (15) - Acquisitions & Disposals (45) (3) Organic growth 110 264 CURRENT PERIOD OPERATING PROFIT * 2,501 2,451 Reported operating Exchange
Slide 12: Organic Operating Margin Up 13 bps
ORGANIC OPERATING MARGIN UP 13 BPS Movement in organic operating margin 103bps 35.4% 35.2% (65)bps (25)bps F19 H1 Gross margin Marketing Other F20 H1 operating items 12
Slide 13: Consistent Free Cash Flow Delivery
CONSISTENT FREE CASH FLOW DELIVERY £ million 1,346 69 (15) (22) (64) 18 966 (318) (48) F19 H1 Exchange Operating Working Capex Tax Interest Other (iv) F20 H1 (i) profit (ii) capital (iii) (i) Exchange on operating profit before exceptional items. (ii) Operating profit excluding exchange, depreciatio
Slide 14: A Consistent and Disciplined Approach to Capital Structure
A CONSISTENT AND DISCIPLINED APPROACH TO CAPITAL STRUCTURE Leverage policy Adjusted Net Debt* to EBITDA: 2.5x – 3.0x Dividends – 1.8x to M&A and portfolio Organic growth 2.2x dividend cover management Return excess cash to shareholders * Net debt is equivalent to net borrowings. Adjusted net debt in
Slide 15: Increased Debt Supported by Favourable Funding
INCREASED DEBT SUPPORTED BY FAVOURABLE FUNDING F20 H1 F19 H1 Movement Closing net debt* £m (12,880) (10,352) (2,528) Average net debt* £m (12,311) (10,183) (2,128) Net interest charge £m (148) (120) (28) Net other finance charges £m (6) (8) 2 Net finance charges £m (154) (128) (26) Effective interes
Slide 16: F20 Exchange Impact Forecast to be Adverse
F20 EXCHANGE IMPACT FORECAST TO BE ADVERSE FOR BOTH OPERATING PROFIT AND NET SALES Exchange rates Total Exchange Impact Translation rate F20 F19* F20 H1** F20 forecast *** £m F20 H1 forecast $/£ 1.29 1.26 1.29 Net Sales 52 (110) €/£ 1.13 1.14 1.17 * Average rate **Average rate Jul-Dec ***Weighted Op
Slide 17: Basic EPS Decreased 2.1%, EPS Before Exceptional Items Up 4.2%
BASIC EPS DECREASED 2.1% EPS BEFORE EXCEPTIONAL ITEMS UP 4.2% Pence per share F19 H1 eps before exceptional items 77.0 Exchange on operating profit (0.6) Acquisitions and disposals(i) (1.4) Organic operating profit growth 4.5 Associates and joint ventures (0.1) Tax(iii) (1.3) Net finance charges(ii)
Slide 18: A Consistent Set of Results
A CONSISTENT SET OF RESULTS Efficient growth: F20 H1 Organic net sales growth 4.2% Organic operating margin improvement +13bps Free cash flow £966m Pre-exceptional eps 80.2p up 4.2% Value creation: ROIC 17.5% down 33bps Total Shareholder Return 4% down 18
Slide 19: Consistent Delivery of Results
CONSISTENT DELIVERY OF 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 growth • V
Slide 20: A Clear Strategy Delivered Through Our Six Priorities
A CLEAR STRATEGY DELIVERED THROUGH OUR SIX PRIORITIES 1 Sustain Quality Growth 2 Embed Everyday Efficiency 3 Invest Smartly 4 Promote Positive Drinking 5 Champion Inclusion and Diversity 6 Pioneer Grain to Glass Sustainability 20
Slide 21: Sustain Quality Growth
SUSTAIN QUALITY GROWTH Greater China +24% Crown Royal +11% Beer +2.5% 21
Slide 22: Sustain Quality Growth: Greater China
SUSTAIN QUALITY GROWTH: GREATER CHINA Chinese White Spirits* Organic net sales growth % 65 63 26 22 F17 FY F18 FY F19 FY F20 H1 Greater China (excl CWS) Organic net sales growth % 21 13 4 (4) * Includes international sales F17 FY F18FY F19 FY F20 H1 22
Slide 23: Sustain Quality Growth: Crown Royal
SUSTAIN QUALITY GROWTH: CROWN ROYAL Crown Royal Organic net sales growth % 12 11 6 3 F17 F18 F19 F20H1 Core vs Flavours % total net sales Flavours Core F17 F18 F19 F20 H1 23
Slide 24: Sustain Quality Growth: Beer
SUSTAIN QUALITY GROWTH: BEER Total Beer Organic net sales growth % 3.8 3.1 2.5 2.1 F17 F18 F19 F20 H1 Guinness Organic net sales growth % 4.8 1.9 1.5 0.4 F17 F18 F19 F20 H1 24
Slide 25: A Clear Strategy Delivered Through Our Six Priorities
A CLEAR STRATEGY DELIVERED THROUGH OUR SIX PRIORITIES 1 Sustain Quality Growth 2 Embed Everyday Efficiency 3 Invest Smartly 4 Promote Positive Drinking 5 Champion Inclusion and Diversity 6 Pioneer Grain to Glass Sustainability 25
Slide 26: Invest Smartly: Across the Business
INVEST SMARTLY: ACROSS THE BUSINESS DATA ANALYTICS AND TOOLS MARKETING INVESTMENT Net sales and marketing investment growth % 8 7 6 6 CATALYST 5 4 4 3 F17 F18 F19 F20 H1 Net sales growth % Marketing investment growth% 26
Slide 27: Invest Smartly: Across the Business
INVEST SMARTLY: ACROSS THE BUSINESS BRAND HOMES SUSTAINABLE CAPEX 27
Slide 28: A Clear Strategy Delivered Through Our Six Priorities
A CLEAR STRATEGY DELIVERED THROUGH OUR SIX PRIORITIES 1 Sustain Quality Growth 2 Embed Everyday Efficiency 3 Invest Smartly 4 Promote Positive Drinking 5 Champion Inclusion and Diversity 6 Pioneer Grain to Glass Sustainability 28
Slide 29: Champion Inclusion and Diversity
CHAMPION INCLUSION AND DIVERSITY
Slide 30: A Clear Strategy Delivered Through Our Six Priorities
A CLEAR STRATEGY DELIVERED THROUGH OUR SIX PRIORITIES 1 Sustain Quality Growth 2 Embed Everyday Efficiency 3 Invest Smartly 4 Promote Positive Drinking 5 Champion Inclusion and Diversity 6 Pioneer Grain to Glass Sustainability 30
Slide 31: Improving Grain-to-Glass Sustainability
IMPROVING GRAIN-TO-GLASS SUSTAINABILITY Carbon Emissions Water Efficiency (1000- tonnes CO2e) (Litres used per litre of packaged product) 731 5.8 672 5.2 633 623 5.0 4.9 586 4.5 F15 F16 F17 F18 F19 F15 F16 F17 F18 F19 31
Slide 32: Focus Areas: F20 H1 Organic Net Sales Growth
FOCUS AREAS: F20 H1 ORGANIC NET SALES GROWTH Scotch Flat US Spirits 6.1% India 2.0% 32
Slide 33: F20 Focus Areas: Strong Scotch Performance Outside of Johnnie Walker
F20 FOCUS AREAS: STRONG SCOTCH PERFORMANCE OUTSIDE OF JOHNNIE WALKER Update side image Organic net sales growth (%) 16.2 16.7 11.6 9.4 8.9 7.1 5.7 6.0 5.4 6.8 6.3 4.7 4.8 1.9 2.5 0.3 1.2 (0.3) (2.2) (3.8) (3.1) (4.5) (9.3) (13.1) Total Scotch Johnnie Walker Buchanan’s Scotch Malts Primary Scotch Oth
Slide 34: F20 Focus Areas: US Spirits Continued Performance Improvement
F20 FOCUS AREAS: US SPIRITS CONTINUED PERFORMANCE IMPROVEMENT Organic volume and net sales growth (%) 6.1 5.0 3.4 3.3 2.5 2.0 1.5 1.2 Volume Net sales F17 F18 F19 F20 H1 34
Slide 35: F20 Focus Areas: US Spirits
F20 FOCUS AREAS: US SPIRITS Nielsen and NABCA combined value growth (%) 42 F19* 27 F20H1** 22 14 11 8 7 8 5 6 4 3 1 1 1 (1) (3) (4) (4) Core brands (9) Crown Royal Johnnie Captain Baileys Smirnoff Cîroc Ketel One Don Julio Bulleit Buchanan’s Walker Morgan vodka*** F20 H1 category value share change*
Slide 36: F20 Focus Areas: India Net Sales Up 2%, Inflationary COGS Impacting Margin
F20 FOCUS AREAS: INDIA NET SALES UP 2%, INFLATIONARY COGS IMPACTING MARGIN India organic net sales growth, % India organic operating margin improvement, bps 12.2 12.4 252 8.8 8.2 6.9 77 5.1 1.9 2.0 F17 F18 F19 F20 H1 (161) F18 F19 F20H1 Total India Prestige and above 36
Slide 37: Effective Execution of Our Strategy, Consistent Results
EFFECTIVE EXECUTION OF OUR STRATEGY CONSISTENT RESULTS Delivering consistent results through our strategy On track to meet guidance Consistent top line growth, increased marketing investment and operating margin expansion enabled by every day efficiency and solid cash flow Delivering on our environm
Slide 38: Financial/Legal Appendix
FINANCIAL/LEGAL APPENDIX 38
Slide 39: Appendix 1: 1/2 Forward Looking Statements
APPENDIX 1: 1/2 FORWARD LOOKING STATEMENTS Exchange rate outlook Using exchange rates £1 = $1.31; £1 = €1.19, the exchange rate movement for the year ending 30 June 2020 is estimated to unfavourably impact net sales by approximately £110 million and operating profit by approximately £40 million. Net
Slide 40: Appendix 1: 2/2 Forward Looking Statements
APPENDIX 1: 2/2 FORWARD LOOKING STATEMENTS Taxation cash flow We had £300m in higher tax payments in the first half F20 primarily driven by one-off tax settlements and timing of payments We expect both of these tax items to impact free cash flow delivery in the full year. Capital expenditure As I lo
Slide 41: Appendix 2: Reconciliation of Cash Flow Statement
APPENDIX 2: RECONCILIATION OF CASH FLOW STATEMENT Reconciliation of free cash flow waterfall on slide 14 Statement of cash flows (£m) F19 F20 Movement Movement on OP as shown in YoY waterfall (£m) Operating profit after exceptional items 2,430 2,442 12 Operating profit after exceptional items 12 Inc
Slide 42: 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 f
Slide 43: Cautionary statement (continued)
(continued from previous page) A cross-functional working group is in place that meets on a regular basis to identify and assess the consequences of Brexit, with all major functions within our business represented. We continue to monitor this risk area very closely, as well as the broader environmen
Slide 44: 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 45: Cautionary statement (continued)
(continued from previous page) • Diageo’s ability to renew supply, distribution, manufacturing or licence agreements (or related rights) and licences on favourable terms, or at all, when they expire; or • any failure by Diageo to protect its intellectual property rights. Other Information All oral a
Slide 46: Celebrating Life, Every Day, Everywhere
CELEBRATING LIFE, EVERY DAY, EVERYWHERE 46