Diageo Plc · LSE:DGE
Diageo — H1 FY2014 Earnings Presentation
39 slides from Diageo's earnings presentation, January 2014
Slide 1: Interim Results
Interim Results Six months ended 31 December 2013
Slide 2: Ivan Menezes, Chief Executive Officer
Ivan Menezes Chief Executive Officer
Slide 3: Building on strength while managing emerging market challenges
B uilding on strength while managing emerging market challenges North America Performance sustained LEADING Western Europe Brands with improving Emerging markets face cyclical challenges while long term structural Category growth trends unchanged breadth 3
Slide 4: Deirdre Mahlan, Chief Financial Officer
Deirdre Mahlan Chief Financial Officer
Slide 5: Strengthening the business and meeting challenges
Strengthening the business and meeting challenges • Weakness in emerging markets impacted top line performance • US Spirits continue to deliver strong net sales growth and margin expansion • Improved performance in Western Europe • Momentum behind our reserve brands in both emerging and developed ma
Slide 6: Individual emerging market challenges offset by sustained performance in North America
Individual emerging market challenges offset by sustained performance in North America Net sales, £m 5,975 83 5,932 248 (143) (86) (145) 2012 Reported Acquisitions & FX Volume* Organic Venezuela 2013 Reported disposals price/mix* adjustment to reported exchange rate Six months ended 31 December. *Vo
Slide 7: Weakness in beer and standard price points in spirits impacted top line growth
Weakness in beer and standard price points in spirits impacted top line growth Volume Volume and net sales growth % Net sales 29% 26% 12% 9% 9% 5% 2% 3% 2% 0% (1)% (3)% (4)% (3)% (3)% (12)% Beer Scotch Vodka Liqueur Rum Tequila RTD Other Six months ended 31 December 2013. Organic movement. 7
Slide 8: Reserve brands offset a decline of Smirnoff in North America
Reserve brands offset a decline of Smirnoff in North America 26% Volume Volume and net sales growth % Net sales 16% 13% 4% 1% 2% 3% 1% (3)% (3)% (2)% (5)% (7)% (10)% (10)% (17)% Reserve Johnnie Captain Crown Smirnoff Value RTD Other brands Walker Morgan Royal brands brands Six months ended 31 Decemb
Slide 9: Improving trends in Western Europe
Improving trends in Western Europe Volume and net sales growth % 14% Volume 12% 12% Net sales 11% 0% (1)% (2)% (2)% (4)% (4)% (5)% (7)% (11)% (14)% Captain Reserve Beer JεB Baileys Smirnoff Other brands Morgan brands Six months ended 31 December 2013. Organic movement. Excluding RTD. 9
Slide 10: Growth in spirits and ready to drink offset by declines in Senator and Harp
Growth in spirits and ready to drink was offset by declines in Senator and Harp in AEET Volume and net sales growth % 91% Volume Net sales 70% 25% 4% 2% 2% (4)% (1)% (6)% (16)% Beer Africa spirits RTDs Russia EE & Other Turkey spirits Six months ended 31 December 2013. Organic movement. 10
Slide 11: Destocking offsets growth in cachaca and rum in Latin America
Destocking offsets growth in cachaca and rum in Latin America Volume and net sales growth % 147% Volume Net sales 29% 21% 12% 0% (5)% (5)% (1)% (13)% (14)% West LAC Venezuela Cachaça Rum Other Six months ended 31 December 2013. Organic movement. 11
Slide 12: Asia Pacific decline driven by South East Asia and baijiu in China
Asia Pacific decline driven by weakness in South East Asia and baijiu in China Volume and net sales growth % Volume 14% Net sales 11% 9% 4% 2% (1)% (1)% (6)% (5)% (66)% Scotch Rum Vodka Baijiu Other categories Six months ended 31 December 2013. Organic movement. 12
Slide 13: Selective price increases and good mix offset volume decline
Selective price increases and good mix offset volume decline Net sales, £m 126 5,761 73 5,658 82 (33) (145) Price/mix drivers 2012 Volume Reserve Beer Baijiu Regional 2013 impact price/mix Six months ended 31 December. Organic movement. 13
Slide 14: Our geographic breadth mitigates the challenges of individual markets
Our geographic breadth mitigates the challenges of individual markets Net sales growth 11% 8% 5% 4% 5% 2% 2% 3% 2.2%1.6%1.8% 1% 1% (1)% (1)% (1)% (6)% (10)% North America Western AEET Latin America Asia Pacific Diageo Europe* and Caribbean Q1 Q2 H1 Organic movement. Q1 net sales growth restated for
Slide 15: Incremental organic marketing investment
Incremental organic marketing investment 910 £m, % growth Thousands 8% (3)% 900 898 8% (5) 890 5% (2)% 9 880 (3) 10 874 870 13 860 850 2012 North America Western AEET Latin America Asia Pacific 2013 Europe* and Caribbean Six months ended 31 December. Organic movement. *Western Europe includes Global
Slide 16: Cost efficiencies and gross margin improvement drive operating margin expansion
Cost efficiencies and gross margin improvement drive operating margin expansion Margin*, ppts 0.3 ppts 0.2 ppts 34.1% (0.1) ppts 33.7% 2012 Gross margin Marketing spend Overheads 2013 Six months ended 31 December. *Organic movement. Operating margin is operating profit as % of net sales. 16
Slide 17: Timing of payments have negatively impacted first half free cash flow
Timing of payments have negatively impacted first half free cash flow £m 800 708 23 600 (165) (50) (13) 400 (112) 326 (62) (3) 200 0 2012 Operating Working Dividend Net interest Tax Pension Other 2013 profit capital income contribution operating movement activities Six months ended 31 December. 17
Slide 18: Reported operating profit growth of 3%
Reported operating profit growth of 3% 2012 2013 Movement £m £m £m Operating profit* 2,001 2,060 59 Associate income net of tax 140 181 41 Trading profit* 2,141 2,241 100 Net finance charges (229) (225) 4 PBET 1,912 2,016 104 Taxation* (349) (391) (42) Non-controlling interests (56) (55) 1 Profit* 1
Slide 19: Interest costs, finance charges
Interest costs, finance charges 2012 2013 Movement £m £m £m Core interest (199) (187) 12 IAS 39 (2) (1) 1 Net interest charge (201) (188) 13 Finance income/(charge) from (22) (7) 15 post employment obligations Venezuela hyperinflationary (2) (27) (25) adjustment Other finance charges (4) (3) 1 Net o
Slide 20: eps grew 4%
eps grew 4% 2012 2013 Movement £m £m £m Operating profit* 2,001 2,060 59 Associate income net of tax 140 181 41 Trading profit* 2,141 2,241 100 Net finance charges (229) (225) 4 PBET 1,912 2,016 104 Taxation* (349) (391) (42) Non-controlling interests (56) (55) 1 Profit* 1,507 1,570 63 eps* 60.2 62.
Slide 21: In Summary: H1 top line weakness while cost focus delivered efficient growth
In Summary H1 saw top line weakness while cost focus delivered efficient growth Weak emerging market currencies have impacted top line growth and reported results 21
Slide 22: In Summary: Performance in Africa and Asia Pacific expected to drive H2 improvement
In Summary Performance in Africa and Asia Pacific expected to drive improvement in H2 Committed to further margin improvement in H2 Delayering the organisation and driving further operating efficiency Investing to deliver our performance ambition 22
Slide 23: Building on strength while managing emerging market challenges
B uilding on strength while managing emerging market challenges North America Performance sustained LEADING Western Europe Brands with improving Emerging markets face cyclical challenges while long term structural Category growth trends unchanged breadth 23
Slide 24: Enhancing our #1 position in North America
Enhancing our #1 position in North America US spirits , 4 of top 10 year 1 launches and 3 • 5% top line growth of top 10 year 2 launches* • Super and ultra premium growth drives positive US Spirits outperformance price/mix Diageo Creates DeLeon • Further growth from Tequila Venture With innovation S
Slide 25: Western Europe continued its Q1 improvement
Western Europe continued its Q1 improvement • Net sales decline slowed Johnnie WALKER red label to 1% relaunched in Great Britain and net sales doubled • Great Britain and France were in growth 10% of Diageo CîROC growth driven by Western Europe • Innovation net sales grew c50%* Media investment inc
Slide 26: The growth opportunities in AEET remain significant
The growth opportunities in AEET remain significant Johnnie Walker Net sales grew 39% in • Nigeria impacting beer Nigeria volumes Diageo leads whiskey and liqueurs in Russia* • 2% top line growth Innovation net sales • Growth of spirits doubled in Africa Re-launch of Guinness in Nigeria and Ghana wi
Slide 27: Diversifying the portfolio managing volatility in LAC
Diversifying the portfolio managing volatility in LAC Diageo Mexico In top 10 best • 8% top line growth places to work • Managing price in Almost half of growth Venezuela from categories outside of scotch • Gaining share in scotch Ypióca fully integrated, net sales+31% • Extending beyond scotch Braz
Slide 28: Weakness in South East Asia and baijiu slows growth in Asia Pacific
Weakness in South East Asia and baijiu slows growth in Asia Pacific Diageo opens third Johnnie Walker • Top line declined 6% House in Seoul • Baijiu impacted by anti- Baileys +37% extravagance measures in China India net sales up • Scotch share gains in Korea* +35% Windsor REGAINS • USL sales promot
Slide 29: Six "MUST DOs"
Step up our executional focus Six ʺMUST DOsʺ Strengthen and accelerate our #1 premium core brands #2 Win in reserve in every market Build and then constantly extend Innovate at scale to meet new #3 consumer needs #4 our advantage in route to consumer Ensure we have the talent to #5 Drive out costs t
Slide 30: Step up our executional focus
Step up our executional focus Strengthen and accelerate our #1 premium core brands 30
Slide 31: Outstanding performance of Reserve
Outstanding performance of Reserve #2 Win in reserve in every market +19% net sales Johnnie Walker Ciroc brands Don Julio Talisker variants Gold Label Reserve +22% +59% +26% +44% Six months ended 31 December 2013. Organic movement. 31
Slide 32: Innovating at scale and driving growth
Innovating at scale and driving growth Innovate at scale to meet new #3 consumer needs 32
Slide 33: Route to consumer: setting up for success
Route to consumer: setting up for success Build and then constantly extend #4 our advantage in route to consumer Russia Western Europe Lebanon China Korea Dom Rep India Mexico Vietnam Venezuela Costa Rica Philippines Venture Caribbean Ethiopia Colombia Ghana Kenya Brazil Nigeria Uganda Peru Cameroon
Slide 34: Six "MUST DOs"
Step up our executional focus Six ʺMUST DOsʺ Strengthen and accelerate our #1 premium core brands #2 Win in reserve in every market Build and then constantly extend Innovate at scale to meet new #3 consumer needs #4 our advantage in route to consumer Ensure we have the talent to #5 Drive out costs t
Slide 35: Changing to achieve our performance ambition
Changing to achieve our performance ambition • Delayer the organisation • Capture further operational efficiency • Build on the 2011 operating model review • Act like owners and be bold in execution 35
Slide 36: The four areas of change
The four areas of change are • Shared services and IS • Supply chain and logistics • Global and regional structures • Ensuring market organisations add value • Funding continuous change and driving efficient growth 36
Slide 37: To create one of the best performing, most trusted consumer products companies
To create one of the best performing, most trusted and respected consumer products companies in the world 37
Slide 38: Outlook statements
Outlook statements Net finance charges The effective interest rate for the year ending 30 June 2014 is expected to be below 4%. Exchange rate movements Exchange rate movements for the year ending 30 June 2014 are expected to adversely impact operating profit by £280 million and decrease finance char
Slide 39: Cautionary statement concerning forward-looking statements
Cautionary statement concerning forward-looking statements This presentation contains ‘forward-looking’ statements. These forward-looking 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 statem