Slide 1: Welcome to CAGNY
• Welcome, everyone - I last presented at CAGNY here in Boca Raton in 2016 so it’s great to be here again and spend time with you all today.
Slide 2: Regulatory statements
But first, here are our regulatory statements.
Slide 3: Plan for today
• Here is our plan for today. • First, I will kick things off with a quick introduction to Diageo. • Then, I will highlight the foundational facts about our attractive industry and Diageo’s strong position and long runway for growth within it. • Next, I will move on to the four key strategies which
Slide 4: Introduction to Diageo
• • • For those unfamiliar with our company, Diageo is one of the global leaders in beverage alcohol, with over 200 brands, including Johnnie Walker and Guinness. • We sell our products in nearly 180 countries and have over thirty thousand employees and 132 production sites. • Since 2017, we have ac
Slide 5: Diageo's global position in beverage alcohol
• Diageo is the third largest player in total beverage alcohol or TBA by value globally. • We are #1 in International Spirits in retail sales value or RSV globally, 1.4x larger than our nearest International Spirits competitor and in the premium plus price tiers we are even larger. • We are bigger t
Slide 6: Purpose and ambition
• We are driven by a clear purpose: celebrating life, every day, everywhere. • It is embedded across our business and goes hand in hand with our ambition - we are committed to being one of the world's best performing, most trusted and respected consumer products companies. • And importantly, we are
Slide 7: Long runway for growth in TBA
• Let me start with why I believe Diageo has a long runway for growth. • Despite our spirits category leadership position, we only have a 4.7% value share of TBA according to IWSR 2022. • We measure ourselves in the total TBA market because consumers make brand choices across spirits, beer and wine
Slide 8: TBA market size and growth
• TBA is large, substantially bigger than non-alcoholic beverage categories combined, with a market size of around $1 trillion globally. • TBA has grown for over a decade, and it’s still growing with strong value and resilient volume growth. • Favourable market demographics and strong premiumisation
Slide 9: Consumer demographics driving TBA growth
• • • • • Strong consumer demographics underpins the growth in the TBA market. • We expect 600 million new legal purchase-age or LPA consumers to enter the market by 2030. • In one of the largest whisky markets in the world, India alone is expected to account for a quarter of LPA growth. • The expan
Slide 10: International spirits outperforming beer and wine
• Drilling down to the three core categories of TBA. • Over the last decade, international spirits has performed remarkably well, growing ahead of beer, wine and overall TBA. • And the strength of international spirits is expected to continue, with our 5-year value growth forecast to be 2x faster th
Slide 11: International spirits resilience
• International Spirits is a very resilient category, as proven during one of the biggest economic downturns of the last 20 years – the global financial crisis in 2008-2009. • During this time, the category grew despite GDP contraction. • In the US, for example, in the off-trade, spirits were 3.5x l
Slide 12: Spirits capitalises on macro consumer trends
• Spirits is also a dynamic category because it capitalises on macro-consumer trends. • Premiumisation, which is consumers choosing to drink better, not more, is a significant trend. • In the last 10 years, premium and above spirits grew from 25% of category value to almost 35%. • Super-premium plus
Slide 13: Premiumisation in spirits
• But premiumisation in spirits is not just about buying the most expensive or luxury products. Since 2017, the average price for a 70cl spirits bottle in the US has only increased by $3, from ~$16 to $19. (Source: IWSR 2022 as of 16th August, 2023) • This is because premiumisation can mean buying a
Slide 14: Diageo's advantaged portfolio
• Looking at Diageo within the most vibrant parts of TBA, we have an advantaged portfolio that has the broadest range of regions, categories and price tiers. • The strength of this portfolio combined with our world class brand building and execution of our strategy for growth enables Diageo to capit
Slide 15: Broad geographical footprint
• Diageo has a broad and diversified geographical footprint vs our peers. • This presence across regions and markets provides the ability to participate in growth opportunities globally. • This supports resilience through short-term volatility and enables the delivery of long-term, sustainable growt
Slide 16: Portfolio across price tiers
• The strength of our portfolio is not only across geographies but also price tiers. • Our advantaged portfolio enables us to provide a breadth of choices within consumer trends – across motivations, occasions and categories - and to offer this to consumers across the world. • This supports the deli
Slide 17: Premiumisation of the portfolio
• Our active portfolio management, along with innovation and brand investment, has also enabled the continued premiumisation of our business. • Premium and above products gained 16 percentage points of share of net sales value since F17. • They now account for 63% of our NSV.
Slide 18: Portfolio across high-growth categories
• Globally, our advantaged portfolio positions us to capture growth opportunities not only by market and price point but also by category. • Our current strategic focus is firmly grounded in the categories of international spirits with high growth. • Tequila has experienced high growth in the US, bu
Slide 19: Medium-term growth guidance
• As I have just taken you through, Diageo’s advantaged footprint across geographies, categories and prices tiers supported by our continued investment and superior execution has driven our 6-year top- line CAGR of 7.4% to fiscal 23. • Looking forward I have confidence in our medium-term top-line or
Slide 20: Four key strategies for growth
• At our Capital Markets Event in November, I laid out the four key strategies I want us to focus on to drive long-term sustainable growth. ‒ Continue to drive growth in our largest categories with our amazing brands ‒ Unleash the power of the portfolio to expand our footprint across the world ‒ Inn
Slide 21: Scotch
• Scotch is Diageo's largest category, representing more than 25% of our total net sales in fiscal 23. We hold the largest global scotch share at just under 40%. (Source: IWSR 2022 as of 16th August, 2023) • And it is highly profitable, with a gross margin that is meaningfully above Diageo’s average
Slide 22: Guinness
• Diageo’s participation in beer is centered around our instantly recognisable flagship and iconic brand, Guinness. • Guinness truly is a ‘Global Brand with a Local Heartbeat’ – created in 1759, it is loved by communities all over the world. • In F23, Guinness delivered its strongest performance eve
Slide 23: Guinness brand homes
• In GB, we plan to open Old Brewer’s Yard in Covent Garden, London in Spring 2025, which will help us to reach an even broader audience for Guinness than before. • Our Guinness brand homes are best in class for consumer engagement. • Our Storehouse in Dublin was named the world’s leading tourist at
Slide 24: Unleashing the portfolio: tequila
• Our next strategy is unleashing the power of our portfolio and expanding our footprint. Our tequila portfolio is a great example of that. • Tequila is an established category in its home market of Mexico and in the US. • But it is now increasingly breaking out into the rest of the world as consume
Slide 25: Innovation to recruit new consumers
• The role of innovation at Diageo is to recruit new consumer groups in new occasions. • We focus on innovation growth behind the major consumer macro trends I discussed earlier. • You see on the slide some of our success stories that have recruited consumers against these key trends by identifying
Slide 26: Raising the bar on execution
• • BWS Supplier of • the year • The fourth component of our strategy for growth is raising the bar on execution. • Continuing to improve our execution at the point of purchase - in-store execution - across our advantaged portfolio is key to ensuring our brands show up with scale and relevance to ou
Slide 27: Engaged workforce
• An important enabler for us is our engaged workforce. We have over 30,000 talented individuals, working with a clear purpose and with speed and agility to deliver our performance. • I believe we have a highly competitive employer brand that helps us to attract, grow and retain the best talent in
Slide 28: Advantaged culture
• At Diageo, we have an advantaged culture that fuels our performance. • Our values are at the heart of our total company culture, and we have recently evolved these to reflect how we are looking to the future in Diageo. • The change to “be better” is one I feel most passionate about. It inspires th
Slide 29: Executive team
• And I am pleased to be joined today by the members of our executive team. • They are a winning combination of home-grown talent who have held varied roles across Diageo markets, including more than half who have been with Diageo for over a decade and new joiners - 3 in the last 5 years - who bring
Slide 30: ESG
• I want to finish by mentioning ESG – a fundamental tenet of both our values, but also building our business. • At our recent interim results presentation, I shared that we are continuing to simplify our Spirit of Progress ESG plan, so that we can focus on the real priorities for our business. For
Slide 31: Growth algorithm
• Thanks Debra. • Our growth algorithm enables us to deliver sustainable long-term growth and consistent top tier shareholder returns. • There are four parts to this simple algorithm • First, we drive top line growth through our fantastic portfolio of brands and their advantaged footprint. • Second,
Slide 32: Top-line performance vs CPG peers
• Let’s start with the top line. • As you will see on this chart, going back seven calendar years to 2016, Diageo’s topline performance has been in the top quartile of CPG peer group companies. • This track record gives us confidence in our ability to drive future growth.
Slide 33: Investment in brand building
• A key driver of our top tier performance is that we have continued to upweight investment in brand building. • Going back to fiscal 17, we have increased marketing investment by over $1 billion. • And this has driven our TBA share up from 4% in 2020 to 4.7% in 2022. • The investment also supports
Slide 34: A&P investment choices and returns
• Let’s double click our A&P investment choices and their returns over the past years. • The increased investments were targeted at the strategies Debra shared earlier. • 83% of the incremental investment was to drive the growth of our largest categories and unleash the power of our portfolio. • The
Slide 35: Revenue growth management
• Over the years, Diageo has built strong capabilities in revenue growth management. • We are strategic and surgical in how we take pricing actions. • And we do this in a very data-based manner. • We leverage our investments in digital, technology and data analytics to make the best pricing decision
Slide 36: Medium-term guidance building blocks
• As Debra shared earlier, our medium-term guidance is to grow topline between 5 and 7%. • This is enabled by our participation in the faster growing categories of international spirits, our advantaged footprint, consistent investment in A&P and our superior execution. • We expect volume growth of 2
Slide 37: Productivity
• Let’s move to productivity. • Delivering everyday efficiency is a mindset that’s built into our culture. • In fiscal 23, we stepped up the delivery of productivity and this helped offset higher cost inflation and enabled us to invest in our business. • In the first half of fiscal 24, we unlocked a
Slide 38: Supply productivity
• Next to Supply productivity. • We leverage the scale and breadth of our business and our investments in digital technologies to continuously increase productivity. • As a part of the supply agility program, we are reviewing our sourcing, manufacturing and distribution footprint to identify opportu
Slide 39: Marketing efficiency
• Over the years we have invested in a suite of tools and capabilities which enable us to improve our marketing efficiency. • Between fiscal 20 and fiscal 23, tools such as Catalyst and Sensor improved A&P ROI ahead of A&P growth on an indexed basis • A further example is the work we are doing to re
Slide 40: Best operating margins among CPG peers
• All of this contributes to Diageo having the best operating margins among our CPG peer group • This is a key advantage that supports our growth strategy.
Slide 41: Maturing stock and capex
• We run this company for the long term, like true owners. • A testament of this is the steady increase in investment that we have made in maturing stock which currently sits at over $7.7 billion. • This is Diageo’s strongest moat. And this has increased by over $2.7 billion in the last six and a ha
Slide 42: Cumulative free cash flow
• Diageo delivers consistent, strong cumulative free cash flows. • Following a dip through Covid, our cumulative free cash flow has increased despite increased reinvestment into the business through capex and increasing maturing stock. • We have delivered this through organic operating profit growth
Slide 43: Working capital
• The work we do on improving working capital is across all three pillars of days sales, days payable, and days inventory. • On DSO and DPO we have improved our working capital performance significantly compared to fiscal 19 first half levels through actively reducing overdue debt, improving supplie
Slide 44: Capital allocation and leverage
• Our strong cash flow performance helps maintain a strong balance sheet. • Our consistent and disciplined approach to capital allocation is unchanged. • Our priority is to invest in sustainable organic growth and to acquire strategic brands that strengthen our exposure to fast-growing categories. •
Slide 45: Shareholder returns
• Over the years, we have delivered significant value to our shareholders. • We have increased dividend every year for over 20 years and have consistently returned excess cash to shareholders. • We expect to remain progressive dividend payers in the medium term. • We returned £9.3 billion of capital
Slide 46: Outlook
• Thank you, Lavanya. • After a 4-year CAGR of 6.5%, the first half of fiscal 24 was challenged due to a materially weaker performance in our Latin America region. • We view this as a near-term challenge, and we expect Diageo’s performance to gradually improve in the second half of fiscal 24 compare
Slide 47: Summary of main messages
• • • • • • • So, to summarise our main messages from today. • Diageo is a leader in total beverage alcohol, a fundamentally attractive, growing and resilient category. • We have a broad geographical footprint and advantaged portfolio, which we continue to actively shape and develop. • We are focuse
Slide 48: Diageo: Celebrating life, every day, everywhere
DIAGEO Celebrating life, every day, everywhere No script 48
Slide 49: Definitions and reconciliation of non-GAAP measures
Financial/legal appendix: Dofinitionsand reconciliationof norrGAAP measuresto GAAPmeasures Diageo's strategic planning process is based on certain non-GAAP measures, including organic movements. These non-GAAP measures are chosen for planning and reporting, and some of them are used for incentive pu
Slide 50: Non-GAAP measures continued
Continued from the previous page (a) Exchangerates "Exchange'in the organicmovementcalculation rflectsthe adjustmentto recalculate the reportedresultsas ifthey had beengeneratedat the prior periodweightedaverageexchange rates. Exchange impacts in respect of the external hedging of intergroup sales b
Slide 51: Non-GAAP measures continued
Continued from the previouspage {d) Fairvalueremeasurement Fair value temeasurement in the organic movement calculation reflects an adjustment o eliminate the impactof fair value changesin biological assets, earn out arrangements that are accounted for as remuneration and fair valuechangesrelatingto
Slide 52: Shareholder value metrics
Continued from the previouspage ‘Shareholdervalue metrics * Dividends Diageointernalinformation ‘* Return of Capital {RoC}: Diageo internalinformation, + TSR FactSet as of 31 December 2023. TSR based on time periods of 6 months, 1 year, 5 years and 10 years up to 31 December 2023. TSRfor I year, 5 y