Slide 1: Diageo Interim Results, Six Months Ended 31 December 2016
DIAGEO INTERIM RESULTS SIX MONTHS ENDED 31 DECEMBER 2016 1
Slide 2: A Strong Set of Results
A STRONG SET OF RESULTS Reflecting our strategy to increase our spirits participation in emerging markets and support premiumisation in developed markets Delivered through our six priorities: • Keep premium core vibrant • Increase participation in mainstream spirits • Continue to win in reserve • Dr
Slide 3: A Strong Set of Results
A STRONG SET OF RESULTS Volume* +1.8%. Net sales* +4.4% Margin** was maintained Consistent strong cash delivery: Free cash flow £1.1bn eps*** up 21% * Organic growth six months ended 31 December 2016, ** Organic operating margin, ***eps pre exceptionals 3
Slide 4: Continuing Our Performance Momentum
CONTINUING OUR PERFORMANCE MOMENTUM Organic volume and net sales growth 4.4% 3.8% 1.8% 1.8% 1.6% 1.0% 0.1% (0.1)% (0.6)% (1.9)% F15 H1 F15 H2 F16 H1 F16 H2 F17 H1 Volume Net sales 4
Slide 5: Progress on Our F17 Focus Areas
PROGRESS ON OUR F17 FOCUS AREAS Scotch net sales growth* 5.8% US Spirits net sales growth* 3.6% India net sales growth* 4.0% * Organic growth six months ended 31 December 2016 5
Slide 6: A Strong Performance Which Reflects
A STRONG PERFORMANCE WHICH REFLECTS: Delivering our strategy Continuing the performance momentum Progressing our F17 focus areas Reinforces our confidence in delivering our medium term guidance and enables our long term performance ambition 6
Slide 7: A Strong Set of Results Continuing Our Performance Momentum
A STRONG SET OF RESULTS CONTINUING OUR PERFORMANCE MOMENTUM 1.8% organic volume growth 4.4% organic net sales growth 4.4% organic operating profit growth Organic operating margin flat despite upfront productivity costs eps pre exceptionals up 21% Another period of strong free cash flow; £1.1bn 7
Slide 8: Reported Net Sales Up 15% with Improved Organic Growth
REPORTED NET SALES UP 15% WITH IMPROVED ORGANIC GROWTH £m F17 H1 F16 H1 PRIOR PERIOD NET SALES 5,606 5,900 Asia Pacific net sales adjustment (72) Exchange 853 (282) Acquisitions & Disposals (236) (109) Organic growth 270 97 CURRENT PERIOD NET SALES 6,421 5,606 8
Slide 9: Improved Volume and Mix Performance Delivered 4.4% Organic Net Sales Growth
IMPROVED VOLUME AND MIX PERFORMANCE DELIVERED 4.4% ORGANIC NET SALES GROWTH Organic volume growth Price/Mix Organic net sales growth 4.4% 2.7% 2.8% 1.8% 1.3% 1.3% 1.5% 0.0% (1.3)% F15 F16 F17 H1
Slide 10: Broad Based Top Line Growth
BROAD BASED TOP LINE GROWTH F17 H1 organic net sales movement £32m £270m £60m £32m £76m £67m NAM ERT Africa LAC APAC Diageo Organic net +3% +5% +4% +11% +3% +4.4% sales growth Volume Price / Mix 10 Note: £3m net sales growth in corporate in the six months ended 31 December 2016
Slide 11: Global Giants, Local Stars and Reserve in Growth
GLOBAL GIANTS, LOCAL STARS AND RESERVE IN GROWTH F17 H1 organic net sales growth 47% 12% 9% 6% 3% 3% Total Reserve Total Reserve Total Reserve Global giants Local stars Other* *Excludes global giants and local stars 11
Slide 12: Broad Based Growth Across Our Portfolio
BROAD BASED GROWTH ACROSS OUR PORTFOLIO F17 H1 organic net sales growth 18% 15% 11% 7% 6% 2% 2% 0% (2)% (1)% Scotch Vodka NAM Rum Liqueurs IMFL Gin Tequila Beer RTD Whiskey Whisky 12
Slide 13: F17 Focus Areas: Scotch
F17 FOCUS AREAS: SCOTCH SCOTCH PERFORMANCE ACCELERATED Organic net sales growth 6.1% 5.8% 5.4% 4.9% F16 F17 H1 (1.2)% (1.1)% Standard * Premium Super Deluxe *Standard including value scotch 13
Slide 14: F17 Focus Areas: US Spirits
F17 FOCUS AREAS: US SPIRITS US SPIRITS RECOVERY CONTINUED 3.6% 3.1% Organic volume growth Organic net sales growth 1.2% 1.3% (1.5)% (3.4)% F15 F16 F17 H1 14
Slide 15: F17 Focus Areas: India
F17 FOCUS AREAS: INDIA INDIA IS STRONGER ALTHOUGH DEMONETISATION IMPACTED THE HALF Prestige and above brands in good growth, up 11% Scotch grew 11% led by Johnnie Walker, up 23% Growth through relaunches, innovation and premiumisation Organic net sales growth six months ended 31 December 2016 15
Slide 16: Reported Profit Up 20%, Organic Operating Profit Growth 4.4%
REPORTED PROFIT UP 20% ORGANIC OPERATING PROFIT GROWTH 4.4% £m F17 H1 F16 H1 PRIOR PERIOD OPERATING PROFIT * 1,717 1,839 Exchange 303 (125) Acquisitions & Disposals (42) (36) Organic growth 87 39 CURRENT PERIOD OPERATING PROFIT * 2,065 1,717 *Operating profit pre exceptional items 16
Slide 17: Reported Margin Up 153 bps, Organic Operating Margin Flat
REPORTED MARGIN UP 153 BPS ORGANIC OPERATING MARGIN FLAT 55bps (1bps) 32.16% 35bps 64bps 30.63% F16 H1* Exchange Asia Pacific Acquisitions Organic F17 H1* sales and disposals operating adjustment margin *Excludes exceptional operating items 17
Slide 18: Improved Organic Operating Profit Growth Was Driven by Top Line
IMPROVED ORGANIC OPERATING PROFIT GROWTH WAS DRIVEN BY TOP LINE £87m F17 H1 organic operating profit movement £59m £32m £23m £3m £(16)m £(14)m North ERT Africa LAC Asia Pac Corporate Diageo America Organic operating 6% 6% 2% 13% (6)% (20)% 4.4% profit growth 18
Slide 19: Organic Operating Margin Held Flat Despite Productivity Costs
ORGANIC OPERATING MARGIN HELD FLAT DESPITE PRODUCTIVITY COSTS Movement in organic operating margin 90bps (130)bps 39bps 32.54% UB share sale 32.53% (43) bps F16 H1 Gross margin Marketing Other F17 H1 operating expenses 19
Slide 20: Underlying Marketing Spend Up 4.2%
UNDERLYING MARKETING SPEND UP 4.2% £m F17 H1 Prior period marketing 822 Exchange 113 Acquisitions and disposals (11) Procurement efficiencies (56) Underlying increase 4.2% 39 Current period marketing 908 20
Slide 21: Productivity Is on Track
PRODUCTIVITY IS ON TRACK Net Revenue Management Supply cost efficiencies Marketing spend efficiency and effectiveness Organisational effectiveness Zero based budgeting for indirect spend 21
Slide 22: Continued Strong Free Cash Flow, Up £245 Million
CONTINUED STRONG FREE CASH FLOW, UP £245 MILLION £29m £12m £5m £303m £1,084m £(163)m £108m £(49)m £839m F16 H1 Operating Exchange Working Capex Interest Tax Other (iii) F17 H1 profit (i) (ii) capital (i) Operating profit excluding exchange, depreciation and amortisation, post employment payments and
Slide 23: Net Debt Reflects Strong Free Cash Flow and Disposals
NET DEBT REFLECTS STRONG FREE CASH FLOW AND DISPOSALS, PARTIALLY OFFSET BY EXCHANGE £m F17 H1 F16 H1 Movement Closing net debt £m (8,936) (9,228) 292 Average net debt £m (9,066) (9,671) 605 Net interest charge £m (153) (163) 10 Net other finance charge £m (29) (13) (16) Net finance charges £m (182)
Slide 24: Favourable Exchange Outlook for the Full Year
FAVOURABLE EXCHANGE OUTLOOK FOR THE FULL YEAR Exchange rates Total Exchange Impact Translation rate F16* F17 H1** F17 forecast*** F17 £m F16 F17 H1 forecast $/£ 1.48 1.27 1.26 Net Sales (172) 853 1,400 €/£ 1.34 1.16 1.16 *Average rate **Average rate of July-December Operating (85) 303 460 ***Weighte
Slide 25: EPS Before Exceptional Items Up 21%
EPS BEFORE EXCEPTIONAL ITEMS UP 21% F17 H1 Pence per share F16 H1 eps 51.3 Disposals and acquisitions (1.7) Exchange 12.0 Organic operating profit growth 3.5 Associates and joint ventures 1.4 Tax (4.4) Other (0.1) F17 H1 eps 62.0 25
Slide 26: Return on Invested Capital Increased 186bps
RETURN ON INVESTED CAPITAL INCREASED 186BPS 150bps 6bps 18bps 15.71% 28bps (100)bps 84bps 13.85% F16 H1 Organic Associates Exchange Acquisitions Tax Other F17 H1 operating and joint and profit ventures disposals 26 ROIC calculation excludes exceptional items
Slide 27: Efficient Growth and Value Creation in F17 H1
EFFICIENT GROWTH AND VALUE CREATION IN F17 H1 Organic volume growth +1.8% Organic net sales growth +4.4% Organic operating margin (1) bps Free cash flow +£245m to £1.1bn Pre exceptional eps +21% ROIC +186 bps Total Shareholder Return +3% 27
Slide 28: F17 H2 Outlook
F17 H2 OUTLOOK Organic net sales growth broadly in line with H1 Organic operating margin will improve Exchange remains favourable Interest charge will reduce with lower net debt Tax rate* expected to be 21% 28 *pre exceptional items
Slide 29: Diageo Has a Clear Strategy
DIAGEO HAS A CLEAR STRATEGY Delivering through our six priorities With clear goals defined by our performance ambition Four measures of our progress • efficient growth • value creation • credibility & trust • motivated people 29
Slide 30: Clear Measures of Our Progress
CLEAR MEASURES OF OUR PROGRESS KPIs aligned to our measures 1) Efficient Growth and 2) Value Creation • KPIs: volume growth, NSV growth, operating margin, FCF, EPS ,ROIC, TSR 3) Credibility and trust • KPIs: Alcohol in society programmes, water efficiency and carbon 4) Motivated people • KPIs: Emplo
Slide 31: A Strong Set of Results
A STRONG SET OF RESULTS Delivering our strategy to increase spirits participation in emerging markets and support premiumisation in developed markets Continuing performance momentum Progress against our F17 focus areas: Scotch, US spirits and India Built confidence in delivery of our medium term gui
Slide 32: A Clear Strategy Delivered Through Our Six Priorities
A CLEAR STRATEGY DELIVERED THROUGH OUR SIX PRIORITIES Keep premium core vibrant Increase participation in mainstream spirits Continue to win in reserve Drive innovation at scale Build advantaged routes to consumer Embed productivity in our culture to drive out costs to invest in growth 32
Slide 33: Europe Is Now a Reliable Compounder of Growth
APPLYING THE EXECUTIONAL PRIORITIES IN EUROPE: EUROPE IS NOW A RELIABLE COMPOUNDER OF GROWTH Organic net sales and operating profit growth 9% 5% 3% 3% 1% 0% 0% 0% F14 F15 F16 F17 H1 Net sales Operating profit 33
Slide 34: Europe Is Now Consistently Gaining Share
APPLYING THE EXECUTIONAL PRIORITIES IN EUROPE: EUROPE IS NOW CONSISTENTLY GAINING SHARE Rolling 12 month Value share* 20.6% 20.5% 20.0% 19.9% June 2014 June 2015 June 2016 November 2016 *Nielsen Spirits total Western Europe excluding Poland Off trade and France On trade. 34
Slide 35: Applying the Executional Priorities in Europe
APPLYING THE EXECUTIONAL PRIORITIES IN EUROPE Keep premium core vibrant Increase participation in mainstream spirits Continue to win in reserve Drive innovation at scale Build advantaged routes to consumer Embed productivity in our culture to drive out costs to invest in growth 35
Slide 36: Keeping Premium Core Vibrant Through Effective Marketing in Europe
KEEPING PREMIUM CORE VIBRANT: THROUGH EFFECTIVE MARKETING IN EUROPE 36
Slide 37: Continue to Win in Reserve: Building the Best Luxury Drinks Portfolio in Europe
CONTINUE TO WIN IN RESERVE: BUILDING THE BEST LUXURY DRINKS PORTFOLIO IN EUROPE 37
Slide 38: Drive Innovation at Scale in Europe
DRIVE INNOVATION AT SCALE IN EUROPE 38
Slide 39: Build Advantaged Routes to Consumer in Europe
BUILD ADVANTAGED ROUTES TO CONSUMER: CREATING A RUNWAY FOR GROWTH IN EUROPE Maximise dedicated profitable coverage Business impact (F14 to F16) Sales Force Increased outlet coverage from 47k to 96k outlets +35% Outlets per sales person from 83 to 126 Increased calls per day from 6 to 8 Driving
Slide 40: Embed Productivity in Our Culture to Drive Out Costs in Europe
EMBED PRODUCTIVITY IN OUR CULTURE TO DRIVE OUT COSTS TO INVEST IN GROWTH IN EUROPE Productivity culture driving investment in growth and margin expansion Productivity savings delivered in marketing and overheads Savings reinvested to fund routes to consumer, reserve and innovation priorities Product
Slide 41: A Clear Strategy Delivered Through Our Six Priorities
A CLEAR STRATEGY DELIVERED THROUGH OUR SIX PRIORITIES Keep premium core vibrant Increase participation in mainstream spirits Continue to win in reserve Drive innovation at scale Build advantaged routes to consumer Embed productivity in our culture to drive out costs to invest in growth 41
Slide 42: Increase Participation in Mainstream Spirits: Clear Strategy in Africa
INCREASE PARTICIPATION IN MAINSTREAM SPIRITS: WE HAVE A CLEAR STRATEGY IN AFRICA Widen our beer participation and leverage that to Build a mainstream spirits platform while also Growing premium spirits
Slide 43: Mainstream Spirits Growth Is Driving Improved Performance in Africa
MAINSTREAM SPIRITS GROWTH IS DRIVING IMPROVED PERFORMANCE IN AFRICA Organic net sales growth 20% 5% 4% 3% Africa Mainstream spirits F16 F17 H1 43
Slide 44: Increase Participation in Mainstream Spirits in Africa
INCREASE PARTICIPATION IN MAINSTREAM SPIRITS IN AFRICA Kenya New brands launched in F17 H1
Slide 45: Progress on Our F17 Focus Areas
PROGRESS ON OUR F17 FOCUS AREAS Scotch net sales growth* 5.8% US Spirits net sales growth* 3.6% India net sales growth* 4.0% * Organic growth six months ended 31 December 2016 45
Slide 46: Scotch: Delivering Through the Widest Brand Range
F17 FOCUS AREAS: SCOTCH DELIVERING THROUGH THE WIDEST BRAND RANGE F17 H1 organic net sales movement £m £94m Johnnie Buchanan's Scotch Malts Primary scotch Other Total Scotch Walker Organic net sales +6.3% +24.0% +3.2% +3.5% (1.8)% +5.8% growth 46
Slide 47: Scotch: Johnnie Walker's Commitment to Inspiring Personal Progress
F17 FOCUS AREAS: SCOTCH JOHNNIE WALKER’S COMMITMENT TO INSPIRING PERSONAL PROGRESS IS RE-IGNITING GROWTH
Slide 48: Scotch: Driving Scale Liquid to Lips in Innovative Ways
F17 FOCUS AREAS: SCOTCH DRIVING SCALE LIQUID TO LIPS IN INNOVATIVE WAYS BRAZIL JOHNNIE WALKER TRUCK US DIGITAL MENTORSHIP Facebook Amazon Alexa: Messenger: 3 million households 900 million monthly users Digital Mentorship: 1 million mentorship goal 48
Slide 49: Scotch: Personalisation, Partnerships and Festive Visibility
F17 FOCUS AREAS: SCOTCH PERSONALISATION, PARTNERSHIPS AND FESTIVE VISIBILITY DRIVING GIFTABILITY SHOP-IN-SHOP OPENING IN HARRODS, LONDON
Slide 50: Scotch: Reframing Scotch with Blenders' Batch
F17 FOCUS AREAS: SCOTCH REFRAMING SCOTCH WITH BLENDERS’ BATCH MEXICO:25K SAMPLED WITH 42% CONVERSION TO SALES 50
Slide 51: Scotch: Buchanan's Is a True Local Star
F17 FOCUS AREAS: SCOTCH BUCHANAN’S IS A TRUE LOCAL STAR IN US SPIRITS AND LAC 51
Slide 52: Scotch: Reaching New Consumers with Primary Scotch Brands
F17 FOCUS AREAS: SCOTCH REACHING NEW CONSUMERS WITH PRIMARY SCOTCH BRANDS 52
Slide 53: US Spirits: Closing Gap to Industry Growth
F17 FOCUS AREAS: US SPIRITS CLOSING GAP TO INDUSTRY GROWTH Diageo gap to US Spirits industry value growth* (0.3)% (2.2)% (2.9)% F16 Q4 F17 Q1 F17 Q2 *Nielsen US Spirits excluding convenience stores 53
Slide 54: US Spirits: Improving Performance in US Spirits
F17 FOCUS AREAS: US SPIRITS IMPROVING PERFORMANCE IN US SPIRITS 19% F17 H1 Nielsen value growth* 16% 9% 7% 4% 4% 3% 1% 0% (1)% (1)% 54 * Nielsen 6 months ended 31 December, 2016
Slide 55: US Spirits: Marketing to Recruit Millennial and Multi-Cultural Consumers
F17 FOCUS AREAS: US SPIRITS MARKETING TO RECRUIT MILLENNIAL AND MULTI-CULTURAL CONSUMERS Purpose Personal Partnerships Performance On Premise experiences Amplifying Use data to Marketing Invest in brands drive insights with purpose multi-cultural through and execution partnerships Search and digital
Slide 56: US Spirits: Diageo Is Now the Leader in North American Whiskey
F17 FOCUS AREAS: US SPIRITS DIAGEO IS NOW THE LEADER IN NORTH AMERICAN WHISKEY Our biggest The hottest Our future brand by bourbon in jewels value in the the market US 56
Slide 57: US Spirits: Recipe to Improve Smirnoff's Performance
F17 FOCUS AREAS: US SPIRITS WE HAVE THE RECIPE TO IMPROVE SMIRNOFF’S PERFORMANCE IMPROVE NO.21 CONTINUE TO DRIVE HIGHLIGHT SMIRNOFF’S VALUE PERCEPTION GROWTH THROUGH INNOVATIVE HISTORY INNOVATION AMERICA’S MOST SMIRNOFF INVENTED AWARDED VODKA THE MOSCOW MULE 57
Slide 58: US Spirits: Recruiting Millennials with The Captain
F17 FOCUS AREAS: US SPIRITS RECRUITING MILLENNIALS AND MULTI-CULTURAL CONSUMERS WITH THE CAPTAIN 58
Slide 59: India: Our Strategy in India Is Clear
F17 FOCUS AREAS: INDIA OUR STRATEGY IN INDIA IS CLEAR Strengthen and accelerate prestige and above brands Strengthen route to consumer Driving out costs to invest in growth and expand margins 59
Slide 60: India: Renovation of Prestige Brands Is Driving Improved Performance
F17 FOCUS AREAS: INDIA RENOVATION OF PRESTIGE BRANDS IS DRIVING IMPROVED PERFORMANCE 57% Organic net sales growth 52% 35% 17% 13% 14% 10% 7% (5)% Royal Challenge McDowell's No. 1 Signature Whisky F16 H1 F16 H2 F17 H1 60
Slide 61: India: Growing and Expanding the Premium and Luxury Portfolio
F17 FOCUS AREAS: INDIA GROWING AND EXPANDING THE PREMIUM AND LUXURY PORTFOLIO Organic net sales growth 90% F17 Q1 F17 H1 33% 27% 23% 19% 1% Johnnie Walker Black and White Smirnoff
Slide 62: India: Transforming the Way Consumers See Our Brands In-Store
F17 FOCUS AREAS: INDIA TRANSFORMING THE WAY CONSUMERS SEE OUR BRANDS IN-STORE Before After 62
Slide 63: India: Winning in the On-Trade
F17 FOCUS AREAS: INDIA WINNING IN THE ON-TRADE SCOTCH MENTORING TAKING THE BAR TO THE TABLE WEDDINGS & BANQUETS 63
Slide 64: India: Driving Out Costs to Invest in Growth and Expand Margins
F17 FOCUS AREAS: INDIA DRIVING OUT COSTS TO INVEST IN GROWTH AND EXPAND MARGINS Reducing product costs through tramlining and, improved forecast accuracy and procurement Fit for purpose organisation Zero based budgeting implemented for indirect spend Net revenue management
Slide 65: A Strong Set of Results
A STRONG SET OF RESULTS: Delivering our strategy Continuing our performance momentum Progressing our F17 focus areas Reinforces our confidence in our medium term guidance and enables our long term performance ambition 65
Slide 66: Appendix 1: Forward Looking Statements (1/2)
APPENDIX 1: 1/2 FORWARD LOOKING STATEMENTS Exchange rate outlook Using exchange rates (£1 = $1.24; £1 = €1.16), the exchange rate movement for the year ending 30 June 2017 is estimated to have a positive impact on net sales by approximately £1.4 billion and operating profit by approximately £460 mil
Slide 67: Appendix 1: Forward Looking Statements (2/2)
APPENDIX 1: 2/2 FORWARD LOOKING STATEMENTS Productivity gains announced in July 2015 Savings of £500 million per year by year ending 30 June 2019 will expand margin and fund investment in growth. Capital expenditure Net capital expenditure is expected to be less than £600 million in the fiscal year
Slide 68: Appendix 2: Reconciliation of Cash Flow Movements
APPENDIX 2 RECONCILIATION OF CASH FLOW MOVEMENTS Reconciliation Cash slide waterfall 68
Slide 69: Cautionary Statement Concerning Forward-Looking Statements (Page 1 of 2)
Cautionary statement concerning forward-looking statements (Page 1 of 2) 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
Slide 70: Cautionary Statement Concerning Forward-Looking Statements (Page 2 of 2)
Cautionary statement concerning forward-looking statements (page 2 of 2) • ability to maintain Diageo’s brand image and corporate reputation or to adapt to a changing media environment, and exposure to adverse publicity, whether or not justified, and any resulting impacts on Diageo’s reputation and