Diageo Plc · LSE:DGE
Diageo — H1 2021 Earnings Presentation
55 slides from Diageo's earnings presentation, Jan 28, 2021
Slide 1: Diageo Interim Results Half Year Ended 31 December 2020
DIAGEO INTERIM RESULTS HALF YEAR ENDED 31 DECEMBER 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: Continuing to Support Partners and Communities
CONTINUING TO SUPPORT PARTNERS AND COMMUNITIES • Delivering support through ‘Raising the Bar,’ our $100 million global recovery fund — Already reached c.30,000 outlets in 7 countries • Providing support and training to bartenders and bar owners • Partnering with bars and restaurants to reach consume
Slide 4: Positively Impacting the World by 2030
POSITIVELY IMPACTING THE WORLD BY 2030 HIGHLIGHTS FROM 25 GLOBAL GOALS • Reach 1 billion people with messages PROMOTE POSITIVE DRINKING of moderation • Increase representation of leaders from ethnically diverse backgrounds to 45%* CHAMPION INCLUSION & DIVERSITY • Champion gender diversity with an am
Slide 5: Broad Based Top-Line Improvement Across All Regions
BROAD BASED TOP-LINE IMPROVEMENT ACROSS ALL REGIONS Organic net sales value movement by region 12% 1% (0)% (1)% (1)% (10)% (3)% 15% (23)% (38)% (31)% (33)% (38)% H2 F20 H1 F21 (40)% Greater China H2 F20 H1 F21 H2 F20 H1 F21 H2 F20 H1 F21 H2 F20 H1 F21 H2 F20 H1 F21 H2 F20 H1 F21 Total Diageo North A
Slide 6: Strong Shift in Off-Trade Share Momentum
STRONG SHIFT IN OFF-TRADE SHARE MOMENTUM Percentage of Diageo total net sales value gaining/holding off-trade share in measured markets 100% Held or grew off-trade share in ~70% 80% 60% ~55% ~60% OVER 40% 20% 0% 70%of total net sales value in measured markets in H1 F21 F20 L52W H1 F21 Source: Intern
Slide 7: Encouraging Return to Growth in H1 F21
ENCOURAGING RETURN TO GROWTH IN H1 F21 Organic volume Organic net sales Organic operating margin (0.2)% +1.0% 153 bps Free cash flow EPS pre-exceptionals Interim dividend £1.8bn 12.8% 2% +£0.8bn to 27.96p Source: Diageo internal data 7
Slide 8: Our Business Is Agile, Efficient and Effective
OUR BUSINESS IS AGILE, EFFICIENT AND EFFECTIVE Broad portfolio with leading brands Advantaged route to consumer across categories, geographies and and marketing effectiveness price points Consumer-led, sustainable Embedded culture of innovation executed at scale everyday efficiency Experienced leade
Slide 9: Leveraging Our Insights and Tools
LEVERAGING OUR INSIGHTS AND TOOLS Deep understanding of Data-led marketing consumers through to maximise return comprehensive tools on investment E-commerce Insights-led business building innovation at pace Investing in portfolio, capabilities and capacity 9
Slide 10: Continued Share Gain for Spirits and Confidence in Long-Term Opportunity
CONTINUED SHARE GAIN FOR SPIRITS AND CONFIDENCE IN LONG-TERM OPPORTUNITY Global Total Beverage Alcohol (TBA) market value US spirits market value growth estimate (%) share and growth by category, 2014-20191 by channel, 12 months pre Covid-19 to H1 F212 ’14-’19 CAGR 40% TBA +5% 45% 43% 20% Off-Trade
Slide 11: Increased Participation in Fast-Growing Categories
INCREASED PARTICIPATION IN FAST-GROWING CATEGORIES Diageo reported net sales by category, F15 Diageo reported net sales by category, H1 F21 All others All others 23% Scotch 24% 5% 19% Scotch 24% Gin 5% Gin 3% F15 H1 F21 Beer Tequila 7% Beer Tequila 1% 18% 15% Vodka Vodka 12% 10% US Whiskey 2% US Whi
Slide 12: Built a Strong Footprint in Growth Regions
BUILT A STRONG FOOTPRINT IN GROWTH REGIONS Diageo reported net sales by region, F15 Diageo reported net sales by region, H1 F21 * LAC LAC 10% 9% North America Africa 11% Africa 13% 32% North America 39% F15 H1 F21 Asia Pacific 20% Asia Pacific 20% Greater China Greater China 2% 5% 24% 21% Europe & T
Slide 13: Steadily Premiumised Our Global Portfolio
STEADILY PREMIUMISED OUR GLOBAL PORTFOLIO WHILE US SPIRITS MARKET CONTINUED TO SHOW RESILIENCE Diageo reported net sales by price segment, F15 – H1 F211 US spirits price/mix growth (%), all channels2 100% 5% Super Premium+, Super H1 F21 off-trade 90% 14% Premium+, 4% price/mix: ~7% 24% 80% 70% Premi
Slide 14: Confidence in the Future of Our Business
CONFIDENCE IN THE FUTURE OF OUR BUSINESS Rapidly responded to increased consumer demand in off-trade and e-commerce Gaining quality market share through insights, data and marketing effectiveness tools Investing with confidence in fast-growing markets and categories Driving continued productivity ga
Slide 15: Moderating Impact from Covid-19 on H1 Results
MODERATING IMPACT FROM COVID-19 ON H1 RESULTS Efficient growth Value creation Organic net sales Organic operating ROIC value growth margin expansion 15.8% 1.0% (153)bps 175bps Free cash flow Pre-exceptional EPS Total Shareholder Return £1,753M 69.9p 9% £787M 12.8% 15
Slide 16: Strong Sequential Improvement Post-Covid-19 Onset
STRONG SEQUENTIAL IMPROVEMENT POST-COVID-19 ONSET Organic net sales value movement Organic operating profit movement 5.0% 6.1% 4.3% 4.2% 7.6% 9.0% 5.6% 4.6% 1.0% (3.4)% (41.2)% (22.9)% F17 F18 F19 H1 F20 H2 F20 H1 F21 F17 F18 F19 H1 F20 H2 F20 H1 F21 F20 H2 growth rates are indicative, based on unro
Slide 17: Organic NSV Growth Up 1% Despite Headwinds
ORGANIC NSV GROWTH UP 1% DESPITE HEADWINDS FROM TRAVEL RETAIL AND ON-TRADE KEG BEER Organic net sales value movement +6.2% +1.0% organic net sales growth +1.2% (0.2)% (5.2)% H1 F20 Price/Mix Volume H1 F21 Travel Retail & Adjusted NSV On-Trade excluding Travel (1) Keg Beer impact Retail and On-Trade
Slide 18: Broad Based Sequential NSV Improvement Across All Regions
BROAD BASED SEQUENTIAL NSV IMPROVEMENT ACROSS ALL REGIONS Organic net sales value movement by region 12% 6% 5% 4% 3% 2% (1)% (0)% (1)% (10)% (3)% (31)% (33)% (38)% (40)% H1 F20 H2 F20 H1 F21 H1 F20 H2 F20 H1 F21 H1 F20 H2 F20 H1 F21 H1 F20 H2 F20 H1 F21 H1 F20 H2 F20 H1 F21 NAM NAM Europe Europe and
Slide 19: Strong NSV Improvement Across All Categories
STRONG NSV IMPROVEMENT ACROSS ALL CATEGORIES Organic net sales value movement by category 61% 31% 18% 7% 6% 4% 4% 0% 1% 1% (0)% (1)% (0)% (11)% (8)% (15)% (17)% (15)% (35)% (26)% (41)% H1 F20 H2 F20 H1 F21 H1 F20 H2 F20 H1 F21 H1 F20 H2 F20 H1 F21 H1 F20 H2 F20 H1 F21 H1 F20 H2 F20 H1 F21 H1 F20 H2
Slide 20: Strong Recovery in Local Stars and Reserve
STRONG RECOVERY IN LOCAL STARS AND RESERVE Organic net sales value movement* 15% 11% 8% 1% 1% (7%) (22)% (24)% (31)% H1 F20 H2 F20 H1 F21 H1 F20 H2 F20 H1 F21 H1 F20 H2 F20 H1 F21 Global Giants Local Stars Reserve Global giants Local stars Reserve *Spirits brands excluding ready to drink and flavour
Slide 21: Super Premium and Above Growing Faster Than Pre-Covid-19
SUPER PREMIUM AND ABOVE GROWING FASTER THAN PRE-COVID-19. PREMIUM MORE IMPACTED BY JOHNNIE WALKER AND GUINNESS Organic net sales value movement by price tier 14% 11% 3% 2% 3% 3% (1)% (9)% (17)% (22)% (27)% (36)% H1 F20SuperH2 F20 Premium +H1 F21 H1 F20 H2 F20 Premium H1 F21 H1 F20 H2 F20 Standard H1
Slide 22: Reported Operating Profit Down 8.3%, Organic Down 3.4%
REPORTED OPERATING PROFIT DOWN 8.3% ORGANIC OPERATING PROFIT DOWN 3.4% £m H1 F21 H1 F20 PRIOR PERIOD OPERATING PROFIT * 2,501 2,451 Exchange (134) (15) Fair value remeasurement (8) - Acquisitions & disposals (18) (45) Organic growth (85) 110 CURRENT PERIOD OPERATING PROFIT * 2,256 2,501 Reported ope
Slide 23: Operating Margin Down 153bps
OPERATING MARGIN DOWN 153BPS WITH UNFAVOURABLE CHANNEL AND PRODUCT MIX DRIVING GROSS MARGIN HEADWINDS Movement in organic operating margin 35.6% 17bps 34.0% 4bps (174)bps H1 F20 Gross margin Marketing Other operating items H1 F21 23
Slide 24: Embedded Culture of Everyday Efficiency
EMBEDDED CULTURE OF EVERYDAY EFFICIENCY Manufacturing Procurement Smartlyefficiency everyday Advertising & Overheads Promotion Invest Embed 24
Slide 25: Increasing Investment in Customer/Consumer Experiences and Data Analytics
INCREASING INVESTMENT IN WORLD CLASS CUSTOMER/CONSUMER EXPERIENCES AND DATA ANALYTICS A&P INVESTMENT DIRECT TO CONSUMER Invest Smartly 25
Slide 26: Strong Increase in Free Cash Flow
STRONG INCREASE IN FREE CASH FLOW DRIVEN MAINLY BY WORKING CAPITAL PERFORMANCE Movement in free cash flow 99 1,753 231 (29) 80 649 £ million 966 (134) (109) + £787 million increase in free cash flow F20 H1 Exchange (i) Operating WC Capex Tax Interest Other (iii) F21 H1 profit (ii) (i) Exchange on op
Slide 27: Broadly Flat Leverage Versus F20 Year End
STRONG RESULTS HAVE ENABLED BROADLY FLAT LEVERAGE VERSUS F20 YEAR END * Net debt is equivalent to net borrowings ** Adjusted to include net debt and post employment plan benefit liabilities 27
Slide 28: 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 29: Continued Track Record of Increasing Full Year Dividend Per Share
CONTINUED TRACK RECORD OF INCREASING FULL YEAR DIVIDEND PER SHARE WITH F21 INTERIM DIVIDEND GROWTH 2% Dividend per share F01 to F20 Dividend per share up +213% over last 20 years 80 70 60 50 Pence 40 30 20 10 0 F01 F02 F03 F04 F05 F06 F07 F08 F09 F10 F11 F12 F13 F14 F15 F16 F17 F18 F19 F20 29
Slide 30: Adverse Exchange Impact for Net Sales and Operating Profit
ADVERSE EXCHANGE IMPACT FOR BOTH NET SALES AND OPERATING PROFIT Exchange rates Total exchange impact Translation rate H1 H1 F21 F20* F21* forecast** £m H1 F21 $/£ 1.26 1.31 1.34 Net sales (328) €/£ 1.14 1.11 1.12 * Average rate Jul-Dec **Weighted average rate of F21 H1 and spot rate for H2 Operating
Slide 31: Basic EPS Decreased 14.6%, EPS Before Exceptionals Down 12.8%
BASIC EPS DECREASED 14.6% EPS BEFORE EXCEPTIONAL ITEMS DOWN 12.8% Movement in earnings per share before exceptional items Pence per share F20 H1 eps before exceptional items 80.2 Foreign exchange on operating profit (5.7) Acquisitions and disposals(i) (0.8) Fair value remeasurement (0.3) Organic ope
Slide 32: Cautious Optimism for the Second Half
CAUTIOUS OPTIMISM FOR THE SECOND HALF Encouraged by the strong performance we have delivered in the first half Delivered top-line growth, strong cash flow and stable leverage and continue to invest ahead for the future Maintained resilient long-term dividend growth Confident in our ability to manage
Slide 33: Sustaining Quality Growth from Consistent Investment and Execution
SUSTAINING QUALITY GROWTH FROM CONSISTENT INVESTMENT AND EXECUTION 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 33
Slide 34: Sustaining Quality Growth from Consistent Investment and Execution
SUSTAINING QUALITY GROWTH FROM CONSISTENT INVESTMENT AND EXECUTION 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 34
Slide 35: Leveraging Our Insights and Tools
LEVERAGING OUR INSIGHTS AND TOOLS Deep understanding of Data-led marketing consumers through to maximise return comprehensive tools on investment E-commerce Insights-led business building innovation at pace Investing in portfolio, capabilities and capacity 35
Slide 36: Activating and Investing Behind Consumer Behavioural Trends
ACTIVATING AND INVESTING BEHIND CONSUMER BEHAVIOURAL TRENDS ACCELERATED BY COVID-19 INFORMAL / AT HOME REWARD / INDULGENCE PURCHASING HABIT CHANGES CULTURAL RELEVANCE Deep understanding of consumers INSIGHTS FROM WELL-ESTABLISHED PROPRIETARY TOOLS 36
Slide 37: Executing Brilliantly to Drive Growth in the Off-Trade
EXECUTING BRILLIANTLY TO DRIVE GROWTH IN THE OFF-TRADE OFF-TRADE STRENGTH IN KEY MARKETS Brazil Pre-Covid-19 France RSV YTD total Market off-trade as a percentage of total Diageo off-trade Diageo net sales1 value growth2 United States ~80% ~20% Deep understanding of consumers Off Great Britain ~60%
Slide 38: Maximising Return on Investment Through Data-Led, Targeted Marketing
MAXIMISING RETURN ON INVESTMENT THROUGH DATA-LED, TARGETED MARKETING Global holidays Data-triggered content* EFFECTIVE MARKETING Data-led marketing to maximise ROI Seasonal triggers Weekly rhythms * Chart is representative of approach not actual data 38
Slide 39: Innovating on Our Biggest Brands: Global Giants
INNOVATING ON OUR BIGGEST BRANDS: GLOBAL GIANTS Insights-led innovation CONSUMERS LOOK TO BIG BRANDS FOR TRUST, CONFIDENCE AND SECURITY 39
Slide 40: Unlocking New Revenue Streams for Gifting and Sharing
UNLOCKING NEW REVENUE STREAMS FOR GIFTING AND SHARING FOR SPECIAL TIMES Distinct and Memorable Premiumisation Insights-led innovation FOR AT HOME FOR NO/LOW OCCASIONS Convenient Formats Broader Choices 40 40
Slide 41: Building Our Participation in Fast-Growing E-Commerce Channel
BUILDING OUR PARTICIPATION IN FAST-GROWING E-COMMERCE CHANNEL DIAGEO TOP 4 MARKETS DIAGEO STRENGTH IN CAPABILITY FOUNDATIONS VALUE GROWTH MAJOR CUSTOMERS Spirits value Market H1 F21 net sales value #1 Mkt Share in Europe (H1 Building customer partnerships with brilliant execution PURCHASING at pace
Slide 42: Enabling Consumers to Purchase in Real Time
ENABLING CONSUMERS TO PURCHASE IN REAL TIME ADVERTISING THAT LINKS DIRECTLY TO E-COMMERCE PARTNERS* Shoppable content On-site brand marketing At-home engagement Sponsored on-demand media Mexico E-commerce business building at pace Great Britain US Uganda Germany *where legally permittable 42
Slide 43: Supporting Quality Growth Through Strategic Portfolio Management and Capex
SUPPORTING QUALITY GROWTH THROUGH STRATEGIC PORTFOLIO MANAGEMENT AND CAPEX ACQUIRED* Sichuan Shuijingfang Co., Ltd.2 Investing in portfolio, capabilities and capacity F15 F16 F17 F18 F19 F20 H1 F21 DIVESTED* Major wine brands1 Guinness Brewery, Baltimore, USA3 Bourbon Distillery Johnnie Walker Visit
Slide 44: Underpinning Our Growth Through Society 2030: Spirit of Progress
UNDERPINNING OUR GROWTH THROUGH SOCIETY 2030: SPIRIT OF PROGRESS 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 44
Slide 45: Changing the Way the World Drinks for the Better
CHANGING THE WAY THE WORLD DRINKS FOR THE BETTER PROMOTE POSITIVE DRINKING Reach 1 billion people with a targeted message of moderation by 2030 Educate 10 million young people, parents and teachers on the dangers of underage drinking by 2030 Change attitudes towards drink driving by reaching and edu
Slide 46: Representing a More Inclusive and Diverse Culture
REPRESENTING A MORE INCLUSIVE AND DIVERSE CULTURE CHAMPION INCLUSION & DIVERSITY Improving employability and livelihoods for 200,000 people through Learning for Life and other skills initiatives Providing skills and resources to 1.5 million people through the Diageo Bar Academy Championing gender di
Slide 47: Delivering Sustainable Choices to Our Consumers and Communities
DELIVERING SUSTAINABLE CHOICES TO OUR CONSUMERS AND COMMUNITIES PIONEER GRAIN TO GLASS SUSTAINABILITY ACCELERATE TO A PRESERVE WATER BECOME SUSTAINABLE LOW CARBON WORLD FOR LIFE BY DESIGN Sustainable bottle challenge First Diageo New five-year partnership Partnering with innovators to carbon neutral
Slide 48: Confident in Our Strategy, Resilience, and Ability to Emerge Stronger
CONFIDENT IN OUR STRATEGY, RESILIENCE, AND ABILITY TO EMERGE STRONGER Sustained spirits momentum and premiumisation provide long-term runway for growth Culture of agility and creativity enabling fast response to changing consumer behaviours Driving broad-based top line growth and share gains in a ch
Slide 49: Diageo: Celebrating Life, Every Day, Everywhere
DIAGEO CELEBRATING LIFE, EVERY DAY, EVERYWHERE
Slide 50: Appendix 1: Forward Looking Statements (1/2)
APPENDIX 1: 1/2 FORWARD LOOKING STATEMENTS Net sales We are not providing specific guidance due to the ongoing volatility. However, we will be lapping the second half of fiscal 20, which was significantly impacted by the onset of Covid-19 and therefore expect to see improvement over this weak compar
Slide 51: Appendix 1: Forward Looking Statements (2/2)
APPENDIX 1: 2/2 FORWARD LOOKING STATEMENTS Capital expenditure Looking ahead at our full year forecast, we continue to expect capex to be in line with fiscal 20. Net working capital We closed the first half with a negative net working capital position more like the level we typically see at fiscal y
Slide 52: Appendix 2: Reconciliation of Cash Flow Statement
APPENDIX 2: RECONCILIATION OF CASH FLOW STATEMENT 52
Slide 53: Off-Trade Market Share Approach and Cautionary Statement
Off-trade market share approach (refers to slide 6) All analysis of data has been applied with a tolerance of +/- 3 bps • Percentages represent % of markets by total Diageo net sales contribution who have held or gained off-trade share. – India and East Africa share data represents total trade. • Me
Slide 54: Continued from the Previous Page
Continued from the previous page • changes in consumer preferences and tastes, including as a result of changes in demographics, evolving social trends (including any shifts in consumer tastes towards small-batch craft alcohol, low or no alcohol, or other alternative products), changes in travel, ho
Slide 55: Other Information
Continued from the previous page • fluctuations in exchange rates and/or interest rates, which may impact the value of transactions and assets denominated in other currencies, increase Diageo’s cost of financing or otherwise adversely affect Diageo’s financial results; • movements in the value of th