Slide 1: Diageo Preliminary Results, Year Ended 30 June 2018
DIAGEO PRELIMINARY RESULTS YEAR ENDED 30 JUNE 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 2.5%. Organic net sales 5% Organic operating margin expansion 78bps Consistent strong cash delivery: Free cash flow £2.5bn Eps pre-exceptionals up 9.3% Returned £1.5bn to shareholders through share buy-back in F18 Announcing a further bu
Slide 4: Delivering Consistent Efficient Growth and Value Creation
DELIVERING CONSISTENT EFFICIENT GROWTH AND VALUE CREATION Sustainable organic topline Productivity programme driving Strong free cash flow performance margin improvement Productivity savings 5.0% F17-F19 target 4.3% £700m £2.7bn £2.5bn 2.8% £2.0bn £2.1bn Organic operating margin £1.2bn improvement F
Slide 5: Delivering Consistent Efficient Growth and Value Creation
DELIVERING CONSISTENT EFFICIENT GROWTH AND VALUE CREATION Portfolio Management Shareholder Returns: and M&A Buybacks and Dividend Total Shareholder Return Acquisitions Buyback Progamme 23% £1.5bn in F18 Up to £2bn in F19 17% At least 5% DPS growth p.a. since F14 12% Double Digit Disposals 62.2 65.3
Slide 6: Continued Momentum Which Reflects
CONTINUED MOMENTUM WHICH REFLECTS: Delivering our strategy through our six execution priorities Continuing the performance momentum Continued margin expansion and increased marketing investment enabled by productivity programme and strong cash flow Confidence in delivering our medium term gu
Slide 7: A Set of Strong Consistent Results
A SET OF STRONG CONSISTENT RESULTS Efficient growth: F18 FY Organic net sales growth 5% Organic operating margin improvement +78bps Free cash flow £2.5bn Pre-exceptional eps up 9.3% to 118.6p Value creation: ROIC up 48bps to 14.3% Total Shareholder Return up 23% 7
Slide 8: Reported Net Sales Up 0.9%, 5% Organic Growth
REPORTED NET SALES UP 0.9% 5% ORGANIC GROWTH Organic growth 284 12,163 12,050 288 (454) (5) F17 Exchange Acquisitions Volume Price/mix F18 and disposals 8
Slide 9: 5% Organic Net Sales Growth
5% ORGANIC NET SALES GROWTH Organic volume growth Price/Mix Organic net sales growth 5.0% 4.3% 3.2% 2.8% 2.5% 2.5% 1.3% 1.5% 1.1% F16 F17 F18 9
Slide 10: Broad Based Organic Growth Across Our Categories
BROAD BASED ORGANIC GROWTH ACROSS OUR CATEGORIES Organic net sales growth 40% 16% 8% 7% 6% 4% 2% 2% 1% -1% Scotch Vodka Canadian US Rum Liqueurs IMFL Gin Tequila Beer Whisky Whiskey Whisky 10
Slide 11: Strong Performance Across Our Portfolio
STRONG PERFORMANCE ACROSS OUR PORTFOLIO Organic net sales growth 14% Global giants Johnnie Walker 5% Smirnoff (2)% Captain Morgan 2% 6% Baileys 6% 4% Tanqueray 15% Guinness 5% Global Local Reserve giants stars 11
Slide 12: Reported Operating Profit Before Exceptional Items Up 6.1%
REPORTED OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS UP 6.1% ORGANIC OPERATING PROFIT UP 7.6% £m F18 F17 PRIOR PERIOD OPERATING PROFIT * 3,601 3,008 Exchange (56) 446 Acquisitions & Disposals 4 (43) Organic growth 270 190 CURRENT PERIOD OPERATING PROFIT * 3,819 3,601 Reported operating Exchange Acquis
Slide 13: Organic Operating Margin Up 78 bps
ORGANIC OPERATING MARGIN UP 78 BPS Movement in organic operating margin 148bps 31.5% 30.7% (43)bps (27)bps F17 Gross margin Marketing Other F18 operating items 13
Slide 14: Productivity Programme on Track
PRODUCTIVITY PROGRAMME ON TRACK F17-F19 Guidance Productivity target £700m 2/3 reinvested Margin improvement of 175bps NET REVENUE GLOBAL ORGANISATION MARKETING INDIRECTS MANAGEMENT SUPPLY EFFECTIVENESS 14
Slide 15: Consistent Strong Free Cash Flow Delivery
CONSISTENT STRONG FREE CASH FLOW DELIVERY 280 Maturing stock 2,663 62 2,523 (56) (310) (72) (19) (25) F17 Exchange Operating Working Capex Tax Interest Other (iii) F18 (i) profit (ii) capital (i) Exchange on operating profit before exceptional items (ii) Operating profit excluding exchange, deprecia
Slide 16: Improved Cost of Debt Supported by Favourable Funding Terms
IMPROVED COST OF DEBT SUPPORTED BY FAVOURABLE FUNDING TERMS F18 FY F17 FY Movement Closing net debt* £m (9,091) (7,892) (1,199) Average net debt* £m (9,063) (8,771) (292) Net interest charge £m (241) (294) 53 Net other finance charges £m (19) (35) 16 Net finance charges £m (260) (329) 69 Effective i
Slide 17: 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 * Net debt is equivalent to net borrowings. Adjusted net debt includes net debt and post employment plan benefit 1
Slide 18: F19 Exchange Impact Forecast to Be Adverse
F19 EXCHANGE IMPACT FORECAST TO BE ADVERSE FOR BOTH OPERATING PROFIT AND NET SALES Exchange rates Total Exchange Impact Translation rate F18* F19** £m F18 F19 $/£ 1.35 1.33 €/£ 1.13 1.13 Net Sales (454) (70) * Average rate **Current spot rate Operating (56) (10) Profit Transaction rate F181 F191,2 I
Slide 19: Basic EPS Increased 14.8%
BASIC EPS INCREASED 14.8% EPS BEFORE EXCEPTIONAL ITEMS UP 9.3% Pence per share F17 eps before exceptional items 108.5 Exchange (2.3) Organic operating profit growth 10.8 Associates and joint ventures - Tax (2.6) Finance charges 3.0 Other 1.2 F18 eps before exceptional items 118.6 19
Slide 20: A Set of Strong Consistent Results
A SET OF STRONG CONSISTENT RESULTS Efficient growth: F18 FY Organic net sales growth 5% Organic operating margin improvement +78bps Free cash flow £2.5bn Pre-exceptional eps up 9.3% to 118.6p Value creation: ROIC up 48bps to 14.3% Total Shareholder Return up 23% 20
Slide 21: 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 22: Earning Trust and Respect – Alcohol in Society
EARNING TRUST AND RESPECT – ALCOHOL IN SOCIETY By 2025, we will: Educate 5 million young people, parents and teachers about the dangers of underage drinking Collect 50 million pledges never to drink and drive through #JoinThePact Reach 200 million people with moderation messages from our brands
Slide 23: Earning Trust and Respect
EARNING TRUST AND RESPECT Health and Safety Lost time accident frequency per 1000 Water Efficiency employees (l/l) 2018 1.00 2018 4.94 2017 1.14 2017 4.98 2016 1.44 2016 5.16 2015 1.66 2015 5.84 2014 1.66 2014 6.74 Carbon Emissions Employee Engagement index (1000 tonnes CO2e) (%) 2018 627 2018 76 20
Slide 24: 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 25: Keeping Premium Core Vibrant: Guinness
KEEPING PREMIUM CORE VIBRANT: GUINNESS US Guinness Open Gate Brewery Organic net sales growth Ghana Consumer Promotion 5.6% 3.8% 2.1% Total Beer (1.6)% F15* F16 F17 F18 4.8% 3.9% 0.4% 0.0% Guinness F15 F16 F17 F18 Hop House 13 Open Gate Brewery Beers *Excluding Orijin
Slide 26: Keeping Premium Core Vibrant: Tanqueray
KEEPING PREMIUM CORE VIBRANT: TANQUERAY DRIVE AWARENESS OF PRODUCT CREDENTIALS SCALE SEVILLA Organic net sales growth 15% 12% 10% 6% F15 F16 F17 F18 IGNITE ON TRADE AND THIRD 26 NO.TEN CAPTURE SHARE OF SUPER-PREMIUM WITH SPACE
Slide 27: Continue to Win in Reserve: Chinese White Spirits
CONTINUE TO WIN IN RESERVE: CHINESE WHITE SPIRITS Consistent communication of Industry leading approach to craftsmanship and heritage route to consumer Organic net sales growth 169% 65% 63% 17% (19)% (78)% F13 F14 F15 F16 F17 F18 leveraging traditional and Premiumisation through innovation digital/s
Slide 28: Continue to Win in Reserve: Tequila
CONTINUE TO WIN IN RESERVE: TEQUILA DON JULIO CASAMIGOS Don Julio Organic net sales growth 39% 25% 18% F16 F17 F18 Casamigos value growth* 102% 86% Nielsen NABCA *FYTD Nielsen ending June 16, 2018 and 28 NABCA ending May 31, 2018
Slide 29: Drive Innovation at Scale
DRIVE INNOVATION AT SCALE Recruit Re-recruit Disrupt 29
Slide 30: Continued Solid Growth in the Three Focus Areas
CONTINUED SOLID GROWTH IN THE THREE FOCUS AREAS: ORGANIC NET SALES GROWTH Scotch 1.9% US Spirits 3.3% India 8.8% 30
Slide 31: F18 Focus Areas: Scotch Solid Performance
F18 FOCUS AREAS: SCOTCH SOLID PERFORMANCE Organic net sales growth 16.2% 9.6% 8.8% 6.5% 7.1% 6.0% 5.4% 4.7% 4.8% 1.9% 2.5% 0.4% 0.7% 1.2% (2.2)% (4.5)% (13.5)% (13.1)% Total Scotch Johnnie Buchanan’s Scotch Malts Primary Other Walker Scotch F16 F17 F18 % of Scotch 57% 8% 12% 11% 12% net sales 31
Slide 32: Evolving Our Johnnie Walker Strategy
F18 FOCUS AREAS: SCOTCH EVOLVING OUR JOHNNIE WALKER STRATEGY
Slide 33: F18 Focus Areas: US Spirits Stronger Second Half Performance
F18 FOCUS AREAS: US SPIRITS STRONGER SECOND HALF PERFORMANCE Organic volume and net sales growth Volume Net sales Net sales excluding Cîroc vodka and Ketel One vodka 6.1% 4.2% 4.5% 3.1% 3.4% 3.3% 1.2% 1.5% 1.2% (1.5)% (2.1)% (3.5)% F15* F16 F17 F18 * Excluding Wine
Slide 34: US Spirits Category Share Gains Continued for All Key Brands Except Vodka
F18 FOCUS AREAS: US SPIRITS CATEGORY SHARE GAINS CONTINUED FOR ALL KEY BRANDS EXCEPT VODKA Nielsen and NABCA combined value growth 34.3% 19.1% 13.4% 21.7% 12.8% 9.8% 7.6% 7.0% 5.8% 5.1% 5.3% 2.6% 1.4% 1.3% v (0.6)% (0.8)% (1.1)% (2.8)% Core brands (8.0)%(7.1)% Crown Royal Johnnie Captain Baileys Smi
Slide 35: F18 Focus Areas: India Improved Performance
F18 FOCUS AREAS: INDIA IMPROVED PERFORMANCE AS TOP LINE HEADWINDS SUBSIDE, FULL YEAR NET SALES UP 9% Prestige and above brands organic net India organic net sales growth sales growth 16.4% 20.5% 11.2% 9.5% 5.3% 5.6% 4.0% 2.3% 2.8% (0.5)% 35
Slide 36: Effective Execution of Our Strategy
EFFECTIVE EXECUTION OF OUR STRATEGY CONSISTENT DELIVERY OF STRONG RESULTS: Delivering our strategy through our six execution priorities Creating a more agile, disciplined and high performing organisation Consistent top line growth, increased marketing investment and margin expansion enabled by produ
Slide 37: Appendix 1: Forward Looking Statements (1/2)
APPENDIX 1: 1/2 FORWARD LOOKING STATEMENTS Exchange rate outlook Using exchange rates £1 = $1.33; £1 = €1.13, the exchange rate movement for the year ending 30 June 2019 is estimated to adversely impact net sales by approximately £70 million and operating profit by approximately £10 million. Net sal
Slide 38: 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 39: Appendix 2: Reconciliation of Cash Flow Statement
APPENDIX 2: RECONCILIATION OF CASH FLOW STATEMENT Reconciliation of free cash flow waterfall on slide 15 Movement on operating profit as shown on Cash slide YOY waterfall (£m) Statement of cash flows (£m) F17 F18 Movement Operating profit after exceptional items 132 Operating profit after exceptiona
Slide 40: 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 41: 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 42: Celebrating Life, Every Day, Everywhere
CELEBRATING LIFE, EVERY DAY, EVERYWHERE 42