Diageo Plc · LSE:DGE
Diageo — H1 FY2011 Earnings Presentation
36 slides from Diageo's earnings presentation, Feb 10, 2011
Slide 1: 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 800 088 737 Netherlands – Toll free 0
Slide 2: Diageo Half Year Results
Diageo Half Year Results 10 February 2011
Slide 3: Paul Walsh, CEO
Paul Walsh CEO
Slide 4: Improved performance from Diageo NA and Asia Pacific; weakness in Europe
Improved performance from Diageo NA and Asia Pacific. Weakness in Europe. Increased investment in strategic brands and emerging markets Net sales up 4%* Marketing spend up 10%* Operating profit up 2%* eps pre-exceptionals up 9%** Free cash flow of £0.8bn 6% increase in interim dividend 6 months ende
Slide 5: Deirdre Mahlan, CFO
DIAGEO Deirdre Mahl CFO
Slide 6: Volume growth and positive price/mix drove 4% organic net sales growth
Volume growth and positive price/mix drove 4% organic net sales growth Volume, eu m Net sales, £m 2.4 203 79.0 (0.2) 5,320 (37) 76.8 5,207 (53) Organic growth 3% Organic growth 4% Reported growth 3% Reported growth 2% H1 F10 Organic Scope H1 F11 H1 F10 FX Organic Scope H1 F11 growth change* growth c
Slide 7: Improved net sales performance despite weakness in Europe
Diageo delivered an improved net sales performance despite weakness in Europe Net sales growth*, £m 250 4% 200 150 100 17% 10% 3% 7% 50 15% 0 (50) (3)% (100) North America Europe Latin America Africa Global Travel Asia Pacific Diageo & the Caribbean & Middle East Net sales growth*, % 6 months ended
Slide 8: Price/mix has improved driven by scotch in emerging markets
Price/mix has improved driven mainly by the growth of scotch in emerging markets 6 6 Price/mix, 4 ppts 3 North America 1 Europe (1) International 4 Asia Pacific (1) (2) (2) 6 months ended 6 months ended 6 months ended 31 December 2009 30 June 2010 31 December 2010 Volume, % Net sales, % Organic grow
Slide 9: Super premium price segment grew fastest in all four regions
The super premium price segment grew fastest in all four regions Net sales growth*, £m 100 22% 75 5% 50 1% 25 7% 0 Value Standard Premium Super premium % of Diageo 3% 62% 26% 9% 6 months ended 31 December 2010. *Organic growth. 9
Slide 10: Spirits, primarily scotch and vodka, were key drivers of growth
Spirits, primarily scotch and vodka brands, were the key drivers of growth in the half Net sales growth*, £m 225 4% 200 175 5% 150 125 100 6% 75 8% 50 3% 25 5% 0 (1)% (25) Scotch Vodka Spirits Beer RTD Wine Diageo 6 months ended 31 December 2010. *Organic growth. 10
Slide 11: Strategic brands drove three quarters of total growth
The 14 strategic brands drove three quarters of total growth % of Diageo % of growth Volume 65 77 Net sales 67 75 Marketing spend 79 98 6 months ended 31 December 2010. Organic growth. 11
Slide 12: Organic growth and exchange led to 6% reported operating profit growth
Organic growth and favourable exchange led to 6% reported operating profit growth £30m £1,727m £(4)m £70m £1,631m Organic growth 2% Reported growth 6% H1 F10 Exchange Organic movement Scope change* H1 F11 6 months ended 31 December. Excluding exceptional items. *Scope change comprises acquisitions a
Slide 13: International and margin expansion drove operating profit growth
The strength of International and operating margin expansion in North America and Asia Pacific drove operating profit growth Operating profit growth £m 15% 60 5% 2% 30 18% £4m 0 (30) £(39)m (9)% (60) Corporate North America Europe International Asia Pacific Diageo Movement between budget and actual
Slide 14: Organic gross margin improved by 50 basis points
Organic gross margin improved by 50 basis points Margin movement, ppts* North Asia Total America Europe International Pacific Gross margin 0.5 1.0 (0.6) 0.7 (0.2) 6 months ended 31 December 2010. *Organic movement. Gross margin as % of net sales. 14
Slide 15: Over 60% of incremental marketing spend in emerging markets
Over 60% of incremental marketing spend was invested in the emerging markets Margin movement, ppts* North Asia Total America Europe International Pacific Gross margin 0.5 1.0 (0.6) 0.7 (0.2) Marketing spend (0.8) (1.2) (0.7) (0.6) (0.6) Marketing spend 10 12 1 18 10 growth, % 6 months ended 31 Decem
Slide 16: Operating margin declined 70 basis points due to marketing spend
Operating margin declined 70 basis points due to an increase in marketing spend Margin movement, ppts* North Asia Total America Europe International Pacific H1 F10 Operating margin** 33.4 39.5 34.8 32.9 19.4 Gross margin 0.5 1.0 (0.6) 0.7 (0.2) Marketing spend (0.8) (1.2) (0.7) (0.6) (0.6) Overheads
Slide 17: Operating profit growth and lower finance charges led to 9% PBET growth
Operating profit growth, and lower net finance charges led to 9% growth in PBET H1 F10, H1 F11, Movement, £m £m £m Operating profit* 1,631 1,727 96 Associate income net of tax 94 104 10 Trading profit 1,725 1,831 106 Net finance charges (237) (209) 28 PBET 1,488 1,622 134 6 months ended 31 December.
Slide 18: Finance charges benefited from lower post employment charges
Finance charges benefited from lower post employment charges under IAS19 H1 F10, H1 F11, Movement, £m £m £m Net interest charge (197) (196) 1 Finance income/(charge) from post employment obligations (25) (2) 23 Other finance charges (4) (10) (6) Exchange movements on short term inter-company balance
Slide 19: Lower exceptional items as restructuring programme reaches completion
Lower exceptional items in the period as the global restructuring programme announced in 2009 reaches completion H1 F10, H1 F11, £m £m Global restructuring (21) - Global Supply operations (69) (4) Brewing operations in Ireland (5) (5) Total operating exceptionals (95) (9) Cash outflow 76 67 6 months
Slide 20: 16% increase in net profit
Organic operating profit growth, positive FX, lower finance charges and lower exceptional costs led to a 16% increase in net profit H1 F10, H1 F11, Movement, £m £m £m PBET 1,488 1,622 134 Exceptional items (95) (9) 86 Sale of businesses - (1) (1) PBT 1,393 1,612 219 Tax (310) (352) (42) Minorities (
Slide 21: Continued focus on cash delivery in the half
There was a continued focus on cash delivery in the half Operating working capital as a % of last 12 months net sales 6 5.0 4.6 4 2.3 2 0 (1.0) (2) June 2009 December 2009 June 2010 December 2010 21
Slide 22: 9% growth in eps pre-exceptionals
Positive foreign exchange and organic growth led to 9% growth in eps pre-exceptionals Pence % H1 F10 eps pre-exceptionals 44.2 - Underlying eps growth* 1.4 3 Impact of foreign exchange 2.1 5 Scope change** (0.4) (1) Impact of IAS 19 0.7 2 Impact of IAS 21 and IAS 39 0.2 0 H1 F11 eps pre-exceptionals
Slide 23: Summary
Summary Building momentum A return to positive price/mix Gross margin improvement with strict control of costs Continued strong marketing investment for growth Maintained focus on cash ROIC increased by 0.5 ppts to 18.1% and economic profit increased by £68 million Interim dividend increased by 6% 6
Slide 24: Paul Walsh, CEO
Paul Walsh CEO
Slide 25: Today's results reflect the global economic recovery
Today’s results reflect the global economic environment and our investments to drive growth as recovery gains pace • Double digit net sales growth in emerging markets, and growth in North America while Europe remains weak • Marketing increased 10%, with over 60% of the increase directed towards emer
Slide 26: Diageo's strong platform for growth
Diageo’s strong platform for growth • Global reach • Broad category range of leading brands • Focused investment on marketing • Innovation to drive top line growth • Enhancing our routes to market • Financial strength 26
Slide 27: Focused investment in marketing, sales infrastructure and Capex
Focused investment in marketing, sales infrastructure and Capex to drive growth Developed markets* Emerging markets* 67% of net sales 33% of net sales Total Investment – 31% of net sales Total Investment – 34% of net sales 36% of incremental marketing spend 64% of incremental marketing spend Other o
Slide 28: Brand building is our key growth driver
Brand building is our key growth driver • Increased spend behind effective growth drivers of our strategic brands globally • Marketing innovation to engage with consumers through internet and mobile technology • Investment behind the growth of our scotch brands in the emerging markets • Growth of th
Slide 29: Innovation to sustain brand relevance and unlock future growth
Innovation to sustain brand relevance and unlock future growth • Premiumisation of existing brands • Meeting consumer needs in emerging markets • Driving growth in developed markets • A pipeline of future brands 29
Slide 30: Investing in partnerships and improving routes to market
Investing in partnerships and improving routes to market to drive growth Developed markets Emerging markets • Evolution of sales • Strategic partnerships organisation are building access to a wider customer base • Joint business planning with global • Sales evolution in customers emerging markets 30
Slide 31: Building an efficient supply footprint
Building an efficient supply footprint to support future growth Developed markets Emerging markets • New rum distillery in • Producing scotch for future US Virgin Islands to generations at Roseisle reduce cost of goods • Nigeria brewery expansion • Cost optimisation to meet future consumption across
Slide 32: Driving growth in a diverse global recovery
Driving growth in a diverse global recovery 40 5,304 Net sales growth, £m 25 60 78 53 5,101 26 (79) F10 restated* North Europe Eastern Latin America Africa GTME Asia Pacific F11** America (excl. Eastern Europe & the Europe & & Russia Caribbean Russia) Greece Spain Other 6 months ended 31 December. O
Slide 33: Questions
Questions
Slide 34: Outlook statements for the year ending 30 June 2011
Outlook statements for the year ending 30 June 2011 Organic operating profit growth Despite the economic weakness in much of Europe, our first half performance gives us increased confidence that we will improve on the organic operating profit growth we delivered in fiscal 2010. Cost of goods sold Di
Slide 35: Introducing today's cocktail...
Introducing today’s cocktail... ...the Croquet Club Cobbler
Slide 36: 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