Diageo Plc · LSE:DGE
Diageo — H1 FY2010 Earnings Presentation
37 slides from Diageo's earnings presentation, Feb 11, 2010
Slide 1: Half Year Results Live Q&A Session
Half Year Results Live Q&A Session Please use the following dial-in numbers: UK – Toll free 0800 279 9640 North America – Toll free 1866 850 2201 France – Toll free 0805 770 152 Germany – Toll free 0800 673 8355 Ireland – Toll free 1800 944 322 Italy – Toll free 800 976 303 Netherlands – Toll free 0
Slide 2: Diageo Half Year Results
Diageo Half Year Results 11 February 2010
Slide 3: Paul Walsh, CEO
Paul Walsh CEO
Slide 4: Building the business in a challenging environment
Building the business in a challenging environment • Organic net sales down 2% • Organic operating profit down 3% • Favourable currency movements led to reported net sales up 3%, operating profit broadly flat • While basic eps is down 10%, eps pre-exceptionals and discontinued operations was up 5% •
Slide 5: Building a stronger business well positioned for the future
Building a stronger business well positioned for the future • Effective cost management • Focused marketing and innovation have built stronger brands • Enhanced sales capabilities have delivered stronger customer relationships 4
Slide 6: Nick Rose, CFO
Nick Rose CFO
Slide 7: Organic decline in net sales. Positive exchange rate movements led to reported growth
Organic decline in net sales. Positive exchange rate movements led to reported growth Volume, Net sales, eu m £m H1 F’09 78.2 5,068 Exchange - 207 Organic movement (1.4) (82) Acquisitions/disposals - 14 H1 F’10 76.8 5,207 Organic growth (2)% (2)% Reported growth (2)% 3% 6 months ended 31 December. 6
Slide 8: Decision to reduce US spirits shipments and continued weakness in Spain, Ireland and Eastern Europe
Decision to reduce US spirits shipments and continued weakness in Spain, Ireland and Eastern Europe drove organic net sales decline Net sales growth* 10% 8% 4% (1)% (5)% (2)% (6)% North America Europe Asia Pacific LA&C Africa GTME Diageo 6 months ended 31 December 2009. *Organic growth. 7
Slide 9: Standard segment continues to be resilient in a weak consumer environment
Standard segment continues to be resilient in a weak consumer environment Net sales growth* by price tier 0% (2)% (4)% (4)% Value Standard Premium Super-premium Price/Mix (4)% 1% - 6% % of Diageo 2% 61% 29% 8% 6 months ended 31 December 2009. *Organic growth. 8
Slide 10: Q2 showed improvement mainly reflecting the easing of comparisons
Q2 showed improvement mainly reflecting the easing of comparisons Net sales growth* 2% (2)% (6)% (7)% Q3 F'09 Q4 F'09 Q1 F'10 Q2 F'10 *Organic growth. 9
Slide 11: Positive exchange rate movements partially offset organic operating profit decline
Positive exchange rate movements partially offset organic operating profit decline Volume, Net sales, Operating eu m £m profit*, £m H1 F’09 78.2 5,068 1,643 ** Exchange - 207 43 Organic movement (1.4) (82) (50) Acquisitions/disposals - 14 (5) H1 F’10 76.8 5,207 1,631 Organic growth (2)% (2)% (3)% Re
Slide 12: International was the driver of organic operating profit growth
International was the driver of organic operating profit growth 16% £63m 5% £5m £(11)m £(18)m (2)% (3)% £(50)m (3)% £(89)m North America Europe International Asia Pacific Corporate Diageo 6 months ended 31 December 2009. 11
Slide 13: Operating margin reflects gross margin decline and increase in other costs
Operating margin reflects gross margin decline and an increase other costs partially offset by savings in marketing spend and lower overheads Margin movement, bps (as % of GSV) Gross margin (0.8) A&P 0.5 Overheads 0.6 Other costs (0.9) Operating margin (0.6) 6 months ended 31 December 2009. Organic
Slide 14: Focused marketing spend by region and by brand
Focused marketing spend by region and by brand and capturing cost efficiency and media deflation Marketing spend as % of net sales H1 H1 Difference**, F’09* F’10 ppts North America 13.3 13.4 0.1 Europe 16.5 14.9 (1.6) International 10.7 10.7 0.0 Asia Pacific 22.6 22.6 0.0 Total 14.5 13.9 (0.6) 6 mon
Slide 15: Lower operating profit and associate income more than offset by lower net finance charges
Lower operating profit and associate income were more than offset by lower net finance charges H1 F’09**, H1 F’10, Movement, £m £m £m Operating profit* 1,643 1,631 (12) Associate income net of tax 120 94 (26) Trading profit* 1,763 1,725 (38) Net finance charges (344) (237) 107 PBET 1,419 1,488 69 6
Slide 16: Finance charges benefited from lower interest rates
Finance charges benefited from lower interest rates H1 F’09 H1 F’10 Movement £m £m £m Net interest charge (297) (197) 100 Finance charge from post employment obligations - (25) (25) Other finance charges (28) (4) 24 Exchange movements on short term inter-company loans and other financial investments
Slide 17: Increase in reported tax rate and restructuring costs
Increase in reported tax rate and restructuring costs H1 F’09**, H1 F’10, Movement, £m £m £m PBET* 1,419 1,488 69 Exceptionals (13) (95) (82) PBT* 1,406 1,393 (13) Tax - Underlying at 22% (313) (334) (21) Tax - Exceptionals 103 24 (79) Profit for the period* 1,196 1,083 (113) 6 months ended 31 Decem
Slide 18: Restructuring costs totalling £95 million were taken to exceptionals
Restructuring costs totalling £95 million were taken to exceptionals H1 F’09, H1 F’10, £m £m Global restructuring - 21 Global Supply operations - 69 Brewing operations in Ireland 13 5 Total 13 95 Cash paid 2 76 6 months ended 31 December. 17
Slide 19: Focus on cash has delivered exceptional results in the half
Focus on cash has delivered exceptional results in the half £31m £769m £904m £(110)m £387m £(94)m £(18)m £(61)m H1 F'09 Decrease in Increase in net Increase in tax Change in Decrease in net Other H1 F'10 operating profit interest paid paid working capital capex spend 6 months ended 31 December. 18
Slide 20: Decrease in net borrowings driven by strong free cash flow generation
Decrease in net borrowings driven by strong free cash flow generation £7,419m £238m £7,304m £551m £(904)m Net borrowings at Free cash flow Dividends paid Exchange & other Net borrowings at 30 June 2009 31 December 2009 19
Slide 21: Movement on eps reflects benefit of exchange partially offset by 2% organic decline
Movement on eps reflects benefit of exchange partially offset by 2% organic decline H1 F’09* H1 F’10 pence pence % Basic eps 45.5 40.9 (10) Restructuring costs after tax** 0.4 3.3 Exceptional tax (4.0) - Basic eps before exceptionals** 41.9 44.2 5 3.7 pence 45.5 pence 44.2 pence 41.9 pence (0.1) pen
Slide 22: Exchange rates have again had a significant impact on reported results
Exchange rates in the period have again had a significant impact on reported results H1 F’10 Full year F’10 actual, £m estimate, £m Operating profit translation impact 35 (25) Operating profit transaction impact 53 100 88 75 Impact of IAS 21 on operating profit (45) (45) 43 30 Impact on associates 8
Slide 23: Economic profit and ROIC were negatively impacted by higher invested capital
Economic profit and ROIC were negatively impacted by higher invested capital • Economic profit was £653 million, down £59 million • ROIC was 17.6%, down 110 basis points 6 months ended 31 December 2009. 22
Slide 24: Summary
Summary • Challenging comparables in the half • Focused on building a stronger business • Full year organic operating profit guidance maintained 23
Slide 25: Paul Walsh, CEO
Paul Walsh CEO
Slide 26: Robust business model in uncertain environment
Robust business model in uncertain environment • Uncertain economic and consumer environment continued • Varied market trends • Consumer engagement through brand focus and flexible application of marketing campaigns • Innovation agility to meet changing consumer trends • Financial strength 25
Slide 27: Category breadth to deliver on consumer trends in all regions
Category breadth to deliver on consumer trends in all regions % of regional net sales 100 Wine RTDs Other spirits Liqueur 75 NA Whiskey Rum Vodka Beer 50 25 Scotch 0 North America Europe International Asia Pacific % of Diageo 33 30 27 10 net sales 6 months ended 31 December 2009. 26
Slide 28: North America
North America Continued focus on priority brands, innovation and proven marketing in a weak consumer environment • Weak economic recovery and consumer confidence • Lower shipments of US spirits impacted performance while positioning Diageo for the future • Premium spirits remain the most resilient s
Slide 29: Europe
Europe Focus on growth opportunities and efficiencies in a tough environment • Increased trade and consumer investment delivered strong net sales growth in GB • Iberia and Ireland remained challenging • Short-term challenges in Eastern Europe • Gained share in tough emerging markets • Focused market
Slide 30: International
International Continues to drive overall performance • Latin America and Caribbean, Africa and Global Travel and Middle East all delivered net sales growth • Premium beer drove growth in Africa • Breadth of scotch offering drove share growth in Latin America • Johnnie Walker returned to growth in Gl
Slide 31: Asia Pacific
Asia Pacific Improvement in consumer trends although still affected by some de-stocking • Australia returned to growth with ready to drink and innovation • Maintained scotch leadership in declining Korean market • Strong underlying performance in scotch in China • Strong growth in South East Asia le
Slide 32: Great marketing increased brand equity
Great marketing increased brand equity • Creating memorable experiences, building the long-term health of brands • Intelligent investment, prioritising the most attractive opportunities • Benefiting from media rate deflation and refocusing investment to most relevant channels 31
Slide 33: Tactical opportunities harnessed through innovation
Tactical opportunities harnessed through innovation • Products tailored for changing market trends • Declines in disposable income create demand for smaller pack sizes • Consumers willing to try new flavours from trusted brands • Selected ultra-premium innovation continues 32
Slide 34: Confidence in Diageo's platform for growth
Confidence in Diageo’s platform for growth • Broad category range and geographic reach delivered resilient performance • Great marketing, sales focus and innovation has built brand equity • Enhanced financial strength • Diageo has successfully managed through the tough environment 33
Slide 35: Questions
Questions
Slide 36: Appendix: Performance of other brands in the 6 months ended 31 December 2009
Appendix: Performance of other brands* in the 6 months ended 31 December 2009 Volume Organic net sales Reported net sales movement, % movement, % movements, % Local priority brands North America (6) (7) (6) Europe (1) (6) (1) International 4 7 12 Asia Pacific (6) (4) 7 Total LPBs (3) (3) 1 Category
Slide 37: Cautionary statement concerning forward-looking statements
Cautionary statement concerning forward-looking statements This announcement 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