Diageo Plc · LSE:DGE
Diageo — FY2020 Earnings Presentation
54 slides from Diageo's earnings presentation, Aug 4, 2020
Slide 1: Diageo Preliminary Results, Year Ended 30 June 2020
DIAGEO PRELIMINARY RESULTS YEAR ENDED 30 JUNE 2020
Slide 2: Delivering Our Strategy
DELIVERING OUR STRATEGY 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 Value Credibility E
Slide 3: Supporting Our Communities
SUPPORTING OUR COMMUNITIES • Donated alcohol to make over 10 million bottles of hand sanitiser in 20 countries • Supported local charity and relief efforts with donations – drinking water, food parcels, masks and hygiene products • Launched ‘Raising the Bar’ – our $100 million global programme to su
Slide 4: Supporting Our Customers
SUPPORTING OUR CUSTOMERS • Took back c.500,000 kegs of Guinness from customers • Provided financial support packages and assistance to bartenders and bar owners • Raised money for the hospitality industry through benefit concerts and other fund- raising programmes • Helped the bar professional commu
Slide 5: Engaging Our Consumers
ENGAGING OUR CONSUMERS • Used our insights and technology to connect with consumers and maintain brand relevance • Pivoted to capture increased opportunities in the at-home occasion • Responded to the rise in demand for home delivery – including ‘cocktails to go’ • Leveraged our e-commerce capabilit
Slide 6: Our Leading Portfolio, Efficient Operations and Agile Culture Provide a Strong Foundation
OUR LEADING PORTFOLIO, EFFICIENT OPERATIONS AND AGILE CULTURE PROVIDE A STRONG FOUNDATION Broad portfolio with leading brands Advantaged route to consumer and across categories, geographies and marketing effectiveness price points Consumer-led, sustainable Embedded culture of innovation executed at
Slide 7: Successful Strategic Execution Has Delivered Consistent Growth Prior to COVID-19
SUCCESSFUL STRATEGIC EXECUTION HAS DELIVERED CONSISTENT GROWTH PRIOR TO COVID-19 EVERYDAY EFFICIENCY, FUELLING CONSISTENT & SOLID SUSTAINABLE ORGANIC INCREASED INVESTMENT AND FREE CASH FLOW TOPLINE PERFORMANCE % DRIVING MARGIN IMPROVEMENT £bn 6.1 2.7 2.6 Mid- 2.5 Organic single digit 5.0 operating +
Slide 8: COVID-19 Is Significantly Disrupting Our Business Across All Regions
COVID-19 IS SIGNIFICANTLY DISRUPTING OUR BUSINESS ACROSS ALL REGIONS Organic net sales growth by region in F20(i) Europe and Turkey (12)% H1 F20: 3% North America H2 F20: (31)% 2% Asia Pacific H1 F20: 6% H2 F20: (1)% (16)% Latin America and Caribbean H1 F20: 4% (15)% Africa H2 F20: (38)% H1 F20: 2%
Slide 9: Financial Performance in F20 Was Severely Impacted
FINANCIAL PERFORMANCE IN F20 WAS SEVERELY IMPACTED Organic volume Organic net sales Organic operating margin 11.2% 8.4% 212 bps Free cash flow EPS pre-exceptionals Full year dividend £1.6bn 16.4% 2% to 69.88p Returned £1.25bn to shareholders through share buyback to end January 2020 9
Slide 10: Focused on Managing Through the Crisis to Emerge Stronger
FOCUSED ON MANAGING THROUGH THE CRISIS TO EMERGE STRONGER ONE OF THE BEST PERFORMING, MOST TRUSTED and RESPECTED
Slide 11: Significant Impact from COVID-19 on F20 Results
SIGNIFICANT IMPACT FROM COVID-19 ON F20 RESULTS Efficient growth Value creation Organic net Organic operating ROIC sales growth margin expansion 12.4% (8.4)% (212)bps 267 bps Free cash flow Pre-exceptional eps Total Shareholder Return £1,634m 109.4p 19% 16.4% 11
Slide 12: An Agile Response to Significant Disruption
AN AGILE RESPONSE TO SIGNIFICANT DISRUPTION Protecting our people Supporting communities WE FOCUSED ON Supporting customers and consumers Protecting our business 12
Slide 13: Organic Net Sales Declined 8.4% for the Full Year
AFTER A SOLID FIRST HALF ORGANIC NET SALES DECLINED 8.4% FOR THE FULL YEAR Organic volume growth Price/mix Organic net sales growth 3.8% 4.0% 5.0% 6.1% 4.2% 2.5% 2.3% 0.2% 2.5% 1.3% 2.8% (8.4)% (11.2)% (24.3)% (23.0)% F18 F19 F20H1 F20H2 F20 13
Slide 14: Organic Decline in Most Categories After Broad Based Growth in the First Half
ORGANIC DECLINE IN MOST CATEGORIES AFTER BROAD BASED GROWTH IN THE FIRST HALF Organic net sales movement 31% F20H1 F20FY 25% 11% 8% 7% 7% 6% 3% 2% 3% 2% 0% (1)% (4)% (4)% (8)% (7)% (14)% (15)% (15)% (17)% Scotch Vodka* Canadian US Rum Liqueurs IMFL Gin Tequila Beer Whisky Whiskey Whisky * Vodka incl
Slide 15: COVID-19 Impacted Performance Across Our Portfolio
COVID-19 IMPACTED PERFORMANCE ACROSS OUR PORTFOLIO Organic net sales decline* Global giants Global giants Local stars Reserve (22)% Johnnie Walker (6)% Smirnoff (4)% (2)% Captain Morgan (7)% (3)% Baileys (4)% Tanqueray (13)% (16)% Guinness *Spirits brands excluding ready to drink 15
Slide 16: Reported Operating Profit Before Exceptional Items Down 15.1%
REPORTED OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS DOWN 15.1% ORGANIC OPERATING PROFIT DOWN 14.4% £m F20 F19 PRIOR PERIOD OPERATING PROFIT * 4,116 3,819 Exchange (1) 25 Fair value remeasurement 2 - Acquisitions & Disposals (34) (64) Organic growth (589) 336 CURRENT PERIOD OPERATING PROFIT * 3,494 4,
Slide 17: Organic Operating Margin Down 212bps After 13bps Expansion in the First Half
ORGANIC OPERATING MARGIN DOWN 212BPS AFTER 13BPS EXPANSION IN THE FIRST HALF Movement in organic operating margin 32.3% 22bps (174)bps 30.2% (60)bps F19 Gross margin Marketing Other operating F20 items 17
Slide 18: Consistent Free Cash Flow Delivery in H1, Significantly Impacted in H2
CONSISTENT FREE CASH FLOW DELIVERY IN H1 SIGNIFICANTLY IMPACTED BY COVID-19 IN H2 2,608 (1) (541) (106) 1,634 (47) (96) £ million (56) (127) F19 Exchange Operating Working Capex Tax Interest Other F20 (i) profit (ii) capital (iii) (iv) (i) Exchange on operating profit before exceptional items. (ii)
Slide 19: Increased Debt Supported by Favourable Funding
INCREASED DEBT SUPPORTED BY FAVOURABLE FUNDING F20 F19 Movement Closing net debt* £m (13,246) (11,277) (1,969) Average net debt* £m (12,708) (10,393) (2,315) Net interest charge £m (333) (248) (85) Net other finance charges £m (20) (15) (5) Net finance charges £m (353) (263) (90) Effective interest
Slide 20: 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 Organic Dividends M&A and portfolio 1.8x to 2.2x growth dividend cover management Return excess cash to shareholders * Net debt is equivalent to net borrowings. Adjusted net debt incl
Slide 21: F20 Exchange Impact Is Modest for Both Operating Profit and Net Sales
F20 EXCHANGE IMPACT IS MODEST FOR BOTH OPERATING PROFIT AND NET SALES Exchange rates Total Exchange Impact Translation rate £m F20 F20* F21** $/£ 1.26 1.30 Net Sales 32 €/£ 1.14 1.11 Operating profit (1) Transaction rate F20* F21*** Net Interest (2) $/£ 1.35 1.32 €/£ 1.12 1.12 * Average rate ** Curr
Slide 22: Basic EPS Decreased 54.0%, EPS Before Exceptional Items Down 16.4%
BASIC EPS DECREASED 54.0% EPS BEFORE EXCEPTIONAL ITEMS DOWN 16.4% Pence per share F19 eps before exceptional items 130.8 Exchange on operating profit - Acquisitions and disposals(i) (1.2) Fair value remeasurement 0.1 Organic operating profit growth (24.4) Associates and joint ventures (1.2) Tax(iii)
Slide 23: Consistent Performance Significantly Impacted by COVID-19 in the Second Half
CONSISTENT PERFORMANCE SIGNIFICANTLY IMPACTED BY COVID-19 IN THE SECOND HALF We took quick actions to protect our people and our business We supported our customers and suppliers More agile performance management to respond to changes quickly We strengthened liquidity to support smart investment for
Slide 24: 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 24
Slide 25: Delivering a Resilient Performance in US Spirits
DELIVERING A RESILIENT PERFORMANCE IN US SPIRITS Organic volume and net sales growth (%) Volume 5.0 Net sales 3.4 3.3 2.2 2.0 1.5 1.2 (0.7) F17 F18 F19 F20 25
Slide 26: Engaging Consumers with Creativity and Agility Across Our Brands
ENGAGING CONSUMERS WITH CREATIVITY AND AGILITY ACROSS OUR BRANDS 26
Slide 27: Gaining Market Share in Several Categories and Brands in the US
GAINING MARKET SHARE IN SEVERAL CATEGORIES AND BRANDS IN THE US Nielsen and NABCA combined value growth (%) 66 64 F19* F20** 42 38 23 14 16 11 12 9 7 8 5 2 3 2 1 (1) (4) (7) Crown Royal Smirnoff Johnnie Captain Don Julio Ketel One Baileys Bulleit Cîroc Casamigos Walker Morgan vodka*** F20 category v
Slide 28: Disruption to Growth Momentum in India
DISRUPTION TO GROWTH MOMENTUM IN INDIA India organic net sales India organic operating margin growth, % progression, bps 12.2 12.4 252 8.8 8.2 6.9 77 1.9 Total India Prestige and above (14.0) (17.2) (571) F17 F18 F19 F20 F18 F19 F20
Slide 29: Focusing Investment, Supporting Partners and Capturing New Opportunities in India
FOCUSING INVESTMENT, SUPPORTING PARTNERS AND CAPTURING NEW OPPORTUNITIES IN INDIA Strategic Business Supply Chain Regulatory Choices Partnerships Readiness Interventions • End-to-end • Support to key • Demand-driven • Industry-led portfolio play customers (off- supply advocacy trade and on- • Focuse
Slide 30: Significant Impact on Scotch from COVID-19
SIGNIFICANT IMPACT ON SCOTCH FROM COVID-19 Organic net sales growth (%) F17 F18 F19 F20 16.2 11.6 8.9 6.0 5.4 6.8 6.3 7.1 4.7 5.7 4.8 1.9 2.5 1.2 (2.2) (3.4) (4.5) (8.8) (9.3) (12.0) (13.1) (16.9) (18.7) (21.9) Total Scotch Johnnie Walker Buchanan’s Scotch Malts Primary Scotch Other % of Scotch 55%
Slide 31: Benefitting from Our Broad Portfolio
BENEFITTING FROM OUR BROAD PORTFOLIO PRESTIGE ULTRA-PREMIUM SUPER-PREMIUM PREMIUM STANDARD PRIMARY * Indicative relative pricing 31
Slide 32: Building Vibrancy in Scotch
BUILDING VIBRANCY IN SCOTCH WINNING WITH OUR GLOBAL GIANT PREMIUMISING ASPIRATIONALLY 32
Slide 33: Sharp Reduction in Beer Sales Due to On-Trade Closures
SHARP REDUCTION IN BEER SALES DUE TO ON-TRADE CLOSURES Total Beer Guinness Organic net sales growth % Organic net sales growth % 4.8 3.8 3.1 2.1 1.9 0.4 (15.0) (15.9) F17 F18 F19 F20 F17 F18 F19 F20
Slide 34: Maintaining Relevance and Engagement with Consumers
MAINTAINING RELEVANCE AND ENGAGEMENT WITH CONSUMERS
Slide 35: Investing in Innovation and Consumer Experiences
INVESTING IN INNOVATION AND CONSUMER EXPERIENCES ROLLING OUT SUCCESSFUL INNOVATION RECRUITING THROUGH CONSUMER EXPERIENCES
Slide 36: 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 36
Slide 37: Leveraging Best-in-Class Technology Tools and Data Analytics
LEVERAGING BEST-IN-CLASS TECHNOLOGY TOOLS AND DATA ANALYTICS SUPERIOR CONSUMER INSIGHTS EVERY DAY GREAT EXECUTION & MARKETING EFFECTIVENESS FORESIGHT SYSTEM
Slide 38: Rapidly Responding to Consumer Insights in Real Time
RAPIDLY RESPONDING TO CONSUMER INSIGHTS IN REAL TIME INCREASE IN BAKING AND TREATS INCREASE IN COCKTAIL MAKING
Slide 39: Accelerating Our Investment in E-Commerce
ACCELERATING OUR INVESTMENT IN E-COMMERCE
Slide 40: Investing in the On-Trade Recovery to Emerge Stronger
INVESTING IN THE ON-TRADE RECOVERY TO EMERGE STRONGER DIAGEO BAR ACADEMY COCKTAILS TO GO WELCOME BACK
Slide 41: 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 41
Slide 42: Promoting Positive Drinking
PROMOTING POSITIVE DRINKING INTERACTIVE DRINK IQ QUIZ SMASHED AND UNITAR(i) TRAINING ONLINE (i) United Nations Institute for Training and Research 42
Slide 43: 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 43
Slide 44: Championing Inclusion and Diversity
CHAMPIONING INCLUSION AND DIVERSITY 50% Female representation on Diageo’s Board 39% Gender diversity in senior roles #1 For gender equality in the Equileap Gender Equality Report and Ranking 44
Slide 45: 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 45
Slide 46: Pioneering Grain to Glass Sustainability
PIONEERING GRAIN TO GLASS SUSTAINABILITY INVESTING IN SUSTAINABLE PROVIDING CLEAN WATER AND SANITATION MANUFACTURING AND PACKAGING 46
Slide 47: Confident in the Resilience of Our Business and Industry
CONFIDENT IN THE RESILIENCE OF OUR BUSINESS AND INDUSTRY Using superior insight to rapidly respond to changing consumer opportunities Investing with agility in marketing and innovation Partnering with customers to win across all channels and support the on-trade recovery Driving efficiency in cost a
Slide 48: Appendix: Organic Net Sales Growth by Region
APPENDIX Organic net sales growth F20H1 F20H2* F20 North America 6% (1)% 2% Europe and Turkey 3% (31)% (12)% Africa 5% (33)% (13)% Latin America and Caribbean 2% (40)% (15)% Asia Pacific 4% (38)% (16%) Diageo 4% (23)% (8)% *F20 H2 growth rates are based on unrounded numbers and not necessarily ident
Slide 49: Appendix 1: Forward Looking Statements (1/2)
APPENDIX 1: 1/2 FORWARD LOOKING STATEMENTS Net sales We are not providing specific guidance for fiscal 21. Broadly we expect organic net revenue in the first half to be significantly impacted with sequential improvement in the first and second quarter as the on-trade further reopens, and consumer de
Slide 50: Appendix 1: Forward Looking Statements (2/2)
APPENDIX 1: 2/2 FORWARD LOOKING STATEMENTS Capital expenditure We do not expect to see material opportunities to decrease capex further as we work to complete projects underway to support long-term growth and enhancing brand experiences and increase investment supporting our sustainability agenda. P
Slide 51: 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 52: Continued from the Previous Page
Continued from the 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; • any litigation or other similar proceedings (including with tax, customs, competition, environmental, anti-corrupti
Slide 53: Other Information
Other Information All oral and written forward-looking statements made on or after the date of this document and attributable to Diageo are expressly qualified in their entirety by the above risk factors and by the ‘Risk factors’ section contained in the annual report on Form 20-F for the year ended
Slide 54: Diageo: Celebrating Life, Every Day, Everywhere
DIAGEO CELEBRATING LIFE, EVERY DAY, EVERYWHERE