Slide 1: Diageo Preliminary Results Year Ended 30 June 2017
DIAGEO PRELIMINARY RESULTS YEAR ENDED 30 JUNE 2017 1
Slide 2: A Strong Set of Results
A STRONG SET 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 • value cr
Slide 3: A Strong Set of Results
A STRONG SET OF RESULTS Organic volume +1.1%. Organic net sales +4.3% Organic operating margin expansion 37bps Consistent strong cash delivery: Free cash flow £2.7bn Eps pre-exceptionals up 21% Raising F17-F19 organic operating margin improvement objective to 175bps Announcing share buy-ba
Slide 4: Delivering Consistent Efficient Growth and Value Creation
DELIVERING CONSISTENT EFFICIENT GROWTH AND VALUE CREATION Sustainable organic topline Productivity programme Strong free cash flow performance driving margin improvement Productivity savings 4.3% F17-F19 target £2.7bn £500m + £200m £2.1bn 2.8% £2.0bn Organic margin improvement £1.2bn F14-F16 F17 F18
Slide 5: Continuing Our Performance Momentum
CONTINUING OUR PERFORMANCE MOMENTUM Organic volume and net sales growth 4.3% 2.8% 1.3% 1.1% 0.0% (1.3)% F15 F16 F17 Volume Net sales 5
Slide 6: Progress on Our F17 Focus Areas
PROGRESS ON OUR F17 FOCUS AREAS ORGANIC NET SALES GROWTH Scotch 4.7% US Spirits 3.4% India 1.9% 6
Slide 7: A Strong Performance Which Reflects
A STRONG PERFORMANCE WHICH REFLECTS: Delivering our strategy Continuing the performance momentum Progressing our F17 focus areas Delivering first year of our medium term guidance enables our long term performance ambition Confidence in delivering our revised medium term guidance and 7
Slide 8: A Strong Set of Results Delivering Efficient Growth and Value Creation
A STRONG SET OF RESULTS DELIVERING EFFICIENT GROWTH AND VALUE CREATION Efficient growth: F17 Organic net sales growth 4.3% Organic operating margin improvement 37bps Free cash flow up £566m to £2.7bn Pre exceptional eps up 21% to 108.5 Value creation: ROIC up 175bps to 13.8% Total Shareholder Return
Slide 9: Reported Net Sales Up 15%, 4.3% Organic Growth
REPORTED NET SALES UP 15% 4.3% ORGANIC GROWTH Organic growth 364 12,050 1,359 (282) 124 10,485 F16 Exchange Acquisitions Volume Price/mix F17 and disposals 9
Slide 10: 4.3% Organic Net Sales Growth
4.3% ORGANIC NET SALES GROWTH Organic volume growth Price/Mix Organic net sales growth 4.3% 3.2% 2.8% 1.3% 1.3% 1.5% 1.1% 0.0% (1.3)% F15 F16 F17 10
Slide 11: All Regions Delivered Top Line Growth
ALL REGIONS DELIVERED TOP LINE GROWTH Organic net sales growth 9% price/mix volume 5% 7% 5% 4% 2% 3% 3% 2% 3% 1% 3% 4% 3% 2% 2% 1% -1% NAM ERT AFRICA LAC APAC DIAGEO 11
Slide 12: Broad Based Growth Across Our Categories
BROAD BASED GROWTH ACROSS OUR CATEGORIES Organic net sales growth 26% 11% 8% 6% 5% 4% 3% 2% (4)% Scotch Vodka NAM Rum Liqueurs IMFL Gin Tequila Beer Whiskey Whisky Category as a % of net sales 25% 12% 9% 7% 5% 5% 3% 2% 16% 12
Slide 13: Strong Performance Across Our Portfolio
STRONG PERFORMANCE ACROSS OUR PORTFOLIO Organic net sales growth 9% Global giants Johnnie Walker 6% 7% Smirnoff (1)% Captain Morgan 6% Baileys 5% 3% Tanqueray 9% Guinness 0% Global Local Reserve giants Stars 13
Slide 14: F17 Focus Areas: Scotch, US Spirits, India
F17 FOCUS AREAS: CONTINUOUS IMPROVEMENT IN SCOTCH AND US SPIRITS. INDIA PERFORMANCE AS EXPECTED Organic net sales growth 5.3% 4.7% F16 F17 3.4% 3.1% 1.9% 0.4% Scotch US Spirits India 14
Slide 15: Reported Operating Profit Before Exceptional Items Up 19.7%
REPORTED OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS UP 19.7% 5.6% ORGANIC OPERATING PROFIT GROWTH £m F17 F16 PRIOR PERIOD OPERATING PROFIT * 3,008 3,066 Exchange 446 (83) Acquisitions & Disposals (43) (74) Organic growth 190 99 CURRENT PERIOD OPERATING PROFIT * 3,601 3,008 *Operating profit before ex
Slide 16: Reported Operating Margin Up 120bps, Organic Margin Grew 37bps
REPORTED OPERATING MARGIN EXCLUDING EXCEPTIONAL ITEMS UP 120BPS ORGANIC OPERATING MARGIN GREW 37BPS 37bps 29.9% 36bps 47bps 28.7% F16 * Exchange Acquisitions Organic F17* and disposals operating margin *Excludes exceptional operating items 16
Slide 17: Organic Operating Margin Up 37bps
ORGANIC OPERATING MARGIN UP 37BPS Movement in organic operating margin 55bps (94)bps 19bps 57bps 30.2% 29.8% F16 Gross margin Marketing Overheads Other F17 operating expenses 17
Slide 18: Productivity Efficiency Funded Increased Marketing Activity
PRODUCTIVITY EFFICIENCY FUNDED INCREASED MARKETING ACTIVITY £m F17 Prior period marketing 1,562 Exchange 193 Acquisitions and disposals (8) Marketing efficiencies (100) Underlying increase 8.7% 151 Current period marketing 1,798 18
Slide 19: Organic Operating Margin Up 37bps
ORGANIC OPERATING MARGIN UP 37BPS Movement in organic operating margin 55bps (94)bps UB share sale (26) bps Land sales 19bps (32) bps 57bps 30.2% 29.8% F16 Gross margin Marketing Overheads Other F17 operating expenses 19
Slide 20: Guidance Upgraded to 175bps of Organic Operating Margin Expansion
GUIDANCE UPGRADED TO 175BPS OF ORGANIC OPERATING MARGIN EXPANSION FOR THE THREE YEARS ENDED F19, PRODUCTIVITY TARGET RAISED TO £700M F17-F19 Guidance Productivity target raised by £200m to £700m 2/3 reinvested Margin improvement of 175bps, 75bps higher NET REVENUE GLOBAL ORGANISATION MARKETING INDIR
Slide 21: Continued Strong Free Cash Flow, Up £566 Million
CONTINUED STRONG FREE CASH FLOW, UP £566 MILLION 204 (23) (8) 199 2,663 446 (225) (27) 2,097 F16 Exchange Operating Working Capex Interest Tax Other (iii) F17 (ii) profit (i) capital (i) Operating profit excluding exchange, depreciation and amortisation, post employment payments and non cash items b
Slide 22: Net Debt Reduction Driven by Strong Free Cash Flow
NET DEBT REDUCTION DRIVEN BY STRONG FREE CASH FLOW F17 FY F16 FY Movement Closing net debt £m (7,892) (8,635) 743 Average net debt £m (8,771) (9,245) 474 Net interest charge £m (294) (309) 15 Net other finance charges £m (35) (18) (17) Net finance charges £m (329) (327) (2) Effective interest rate %
Slide 23: 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 * Includes net debt and post employment liabilities 23
Slide 24: F18 Exchange Impact Forecast
F18 EXCHANGE IMPACT FORECAST TO BE POSITIVE FOR OPERATING PROFIT, ADVERSE FOR NET SALES Exchange rates Total Exchange Impact Translation rate F17* F18** £m F17 F18 $/£ 1.27 1.30 €/£ 1.16 1.13 Net Sales 1,359 (80) * Average rate **Current spot rate Operating 447 70 profit Transaction rate F171 F182 I
Slide 25: Basic EPS Increased 18%, EPS Before Exceptional Items Up 21%
BASIC EPS INCREASED 18% EPS BEFORE EXCEPTIONAL ITEMS UP 21% F17 Pence per share F16 eps before exceptional items 89.4 Disposals and acquisitions (1.8) Exchange 17.8 Organic operating profit growth 7.6 Associates and joint ventures 3.5 Tax (7.3) Other (0.7) F17 eps before exceptional items 108.5 25
Slide 26: A Strong Set of Results Delivering Efficient Growth and Value Creation
A STRONG SET OF RESULTS DELIVERING EFFICIENT GROWTH AND VALUE CREATION Efficient growth: F17 Organic net sales growth 4.3% Organic operating margin improvement 37bps Free cash flow up £566m to £2.7bn Pre exceptional eps up 21% to 108.5 Value creation: ROIC up 175bps to 13.8% Total Shareholder Return
Slide 27: 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 28: Delivering Against Our Clear Measures of Progress
DELIVERING AGAINST OUR CLEAR MEASURES OF PROGRESS KPIs aligned to our measures Measure KPIs Efficient Growth NSV growth, operating margin, FCF and EPS Value Creation ROIC and TSR Credibility and Trust Alcohol in society programmes, water efficiency, carbon emissions, health and safety Motivated Peop
Slide 29: Earning Trust and Respect
EARNING TRUST AND RESPECT Health and Safety Alcohol in Society Lost time accident frequency per 1000 Water Efficiency Number of responsible drinking programmes employees (l/l) 2017 264 2017 1.14 2017 4.96 2016 335 2016 1.44 2016 5.13 2015 298 2015 1.66 2015 5.84 2014 373 2014 1.66 2014 6.74 2013 315
Slide 30: Creating a Positive Role for Alcohol in Society
CREATING A POSITIVE ROLE FOR ALCOHOL IN SOCIETY #JoinThePact Smashed 30 Road safety workshops Dominican Republic sets a maximum BAC limit
Slide 31: Progress on Our F17 Focus Areas
PROGRESS ON OUR F17 FOCUS AREAS ORGANIC NET SALES GROWTH Scotch 4.7% US Spirits 3.4% India 1.9% 31
Slide 32: F17 Focus Areas: Scotch Back in Solid Growth
F17 FOCUS AREAS: SCOTCH SCOTCH BACK IN SOLID GROWTH Organic net sales growth 16.2% 9.6% 8.8% 6.0% 6.5% 4.7% 4.8% 2.5% 0.4% 0.7% (4.5)% F16 F17 (13.5)% Total Scotch Johnnie Walker Buchanan's Scotch Malts Primary Scotch Other % of scotch 55% 9% 12% 11% 13% net sales 32
Slide 33: Execution of Growth Drivers Driving Johnnie Walker Growth
F17 FOCUS AREAS: SCOTCH EXECUTION OF GROWTH DRIVERS DRIVING JOHNNIE WALKER GROWTH INSPIRING COMPELLING STORIES DRINKS STRATEGY GIFTING BLUE LABEL 33
Slide 34: Inspiring Stories: Johnnie Walker in the US
INSPIRING STORIES: JOHNNIE WALKER IN THE US TOOK A TAGLINE AND TURNED IT INTO A CULTURAL RALLY CRY BRAND EQUITY +16% +11% +17% +29% SCORE* Distinctive Quality Dynamism Aspiration * Source: Millward Brown FY17 vs FY16 34
Slide 35: Compelling Drinks Strategy: Culturally Relevant Events in the US
COMPELLING DRINKS STRATEGY: SCALE LIQUID ON LIPS AT CULTURALLY RELEVANT EVENTS IN THE US 35
Slide 36: Gifting and Blue Label: Father's Day Activation in New York City
GIFTING AND BLUE LABEL : FATHER’S DAY ACTIVATION IN NEW YORK CITY 36
Slide 37: Primary Scotch Brands Focus Driving Strong Growth
F17 FOCUS AREAS: SCOTCH PRIMARY SCOTCH BRANDS FOCUS DRIVING STRONG GROWTH F17 organic net sales growth 16.2% 11.1% 9.2% 4.8% 2.5% (7.3)% Total Primary Black and VAT 69 Bell's White Horse Other Scotch White 37
Slide 38: Black and White Is Now the Biggest Primary Scotch in Brazil
BLACK AND WHITE IS NOW THE BIGGEST PRIMARY SCOTCH IN BRAZIL Primary scotch share of total scotch in Brazil 35% 30% +3.9% 25% 8.7% 12.6% 20% 15% 12.3% -1.1% 11.2% 10% 5% 8.4% -0.5% 7.9% 0% FY2016 2016 2017 YTD 2017* Other Competitor 1 Black & White Source : Nielsen * through May 2017 38
Slide 39: F17 Focus Areas: US Spirits
F17 FOCUS AREAS: US SPIRITS ACTIONS ARE WORKING BUT WE HAVE MORE WORK TO DO Organic volume and net sales growth Volume Net sales Net sales excluding Ciroc and Ketel One 6.1% 4.2% 3.1% 3.4% 1.2% 1.5% (1.5)% (2.0)% (3.4)% F15 F16 F17 39
Slide 40: F17 Focus Areas: US Spirits
F17 FOCUS AREAS: US SPIRITS ACTIONS ARE WORKING BUT WE HAVE MORE WORK TO DO Organic net sales growth 12.6% 8.1% 6.3% 7.1% 5.1% 3.9% 4.1% 3.5% 1.9% 2.1% 1.9% 1.1% (2.5)% (6.9)% (6.1)% Core brands (15.4)% Core brands Crown Royal Johnnie Captain Baileys Smirnoff Ciroc Ketel One Walker Morgan F16 F17 40
Slide 41: US Spirits: Focused Approach to Improve Performance in F18
US SPIRITS: WE HAVE A FOCUSED APPROACH TO FURTHER IMPROVE PERFORMANCE IN F18 Continue growth in core brands Stabilise super premium vodka Continue double digit growth on reserve* Industry leading innovation Up-weighting marketing investment in F18 * Excluding super premium vodka 41
Slide 42: F17 Focus Areas: India Execution of Strategy
F17 FOCUS AREAS: INDIA EXECUTION OF STRATEGY DRIVING IMPROVED PERFORMANCE IN PRESTIGE AND ABOVE BRANDS Prestige and above brands organic net Prestige and above brands value share sales growth gains (bps) within spirits industry 93 87 73 10% 9% 7% F16 H1 F16 H2 F17 Past 12 months* Past 9 months* Past
Slide 43: F17 Focus Areas: India Driving Out Costs
F17 FOCUS AREAS: INDIA DRIVING OUT COSTS TO INVEST IN GROWTH AND EXPAND MARGINS Gross margin improvement 56 bps Overheads reduced 1%* 43 * Excluding productivity related costs
Slide 44: Effective Execution of Our Strategy
EFFECTIVE EXECUTION OF OUR STRATEGY A STRONG SET OF RESULTS: Delivering our strategy Creating a more agile, disciplined and high performing organization Continuing our performance momentum in our six priorities and three focus areas Enhanced value creation by increasing our medium term operating mar
Slide 45: Appendix 1: 1/2 Forward Looking Statements
APPENDIX 1: 1/2 FORWARD LOOKING STATEMENTS Exchange rate outlook Using exchange rates £1 = $1.30; £1 = €1.13, the exchange rate movement for the year ending 30 June 2018 is estimated to adversely impact net sales by approximately £80 million and favourably impact operating profit by approximately £7
Slide 46: Appendix 1: 2/2 Forward Looking Statements
APPENDIX 1: 2/2 FORWARD LOOKING STATEMENTS Taxation As for most multinationals the current tax environment is creating increased levels of uncertainty. Our current expectation is that the tax rate before exceptional items for the year ending 30 June 2018 will be approximately 21%. Medium term guidan
Slide 47: Appendix 2: Reconciliation of Cash Flow Statement
APPENDIX 2: RECONCILIATION OF CASH FLOW STATEMENT Reconciliation of free cash flow waterfall on slide 21 47
Slide 48: 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 49: 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, importati
Slide 50: Celebrating Life, Every Day, Everywhere
CELEBRATING LIFE, EVERY DAY, EVERYWHERE 50