INTERIM RESULTS MONTHS ENDED 31 DECEMBER 2015

Transcription

1 INTERIM RESULTS MONTHS ENDED 31 DECEMBER

2 A RELENTLESS FOCUS ON EXECUTION TO DRIVE SUSTAINED PERFORMANCE Diageo s brands and geographic reach are a leadership platform in an attractive category Organisational change has created a culture of disciplined execution A strong business focused on sustained performance 2

3 MOMENTUM IS BUILDING Volume up 1%, net sales up 1.8% Depletions ahead of shipments Managing volatility in emerging markets to drive growth Disposal of non core assets Driving productivity and cash conversion 3

4 STRONGER TOP LINE GROWTH AND HIGHER FREE CASH FLOW 1.0% organic volume growth 1.8% organic net sales growth 16bps organic operating margin improvement Exceptional items 107 million* 140 million increase in free cash flow to 839 million Eps pre exceptionals down 4%. Basic eps up 7% Interim dividend up 5% *pre tax

5 ADVERSE EXCHANGE IMPACTED REPORTED NET SALES 5,900 Net sales growth ( m) Organic growth (282) ,606 (109) F15 H1 reported Exchange Disposals & acquisitions Volume price/mix F16 H1 reported

6 IMPROVED VOLUME GROWTH HAS DRIVEN TOP LINE MOMENTUM Organic volume growth Organic net sales growth 1.0% 1.8% (0.6)% 0.1% (0.1)% (1.9)% H1 F15 H2 F15 H1 F16

7 NET SALES GROWTH IMPROVED IN BOTH DEVELOPED AND EMERGING MARKETS Organic net sales growth 4.4% 2.4% Developed markets Emerging markets 0.0% 0.0% (0.4)% H1F15 (1.3)% H2F15 H1F16

8 IN LINE WITH EXPECTATIONS NET SALES DECLINED IN NORTH AMERICA AND IMPROVED IN THE OTHER REGIONS Organic net sales growth ( m) (31) North America Europe, Russia and Turkey Africa Latin America and Caribbean Asia Pacific Other H1 F16

9 BROAD IMPROVEMENT ACROSS US SPIRITS ALTHOUGH OVERALL PERFORMANCE IMPACTED BY CÎROC Smirnoff Crown Royal Johnnie Walker Buchanan s Captain Morgan Tanqueray Ciroc (44)% Bulleit Zacapa Don Julio Baileys 2% 1% Organic net sales growth 3% 3% 4% 5% 8% 9% 26% 28%

10 Six months ended 31 December Organic growth. *Excludes reserve brands which are separately shown. ** Excludes Guinness, which is already shown under global giants NET SALES GROWTH WAS DRIVEN BY STRONG PERFORMANCE FROM THE GLOBAL GIANTS 80 Organic net sales growth ( m) (20) (40) (60) Net Sales Growth Global giants* Local stars* Reserve Other spirits* Beer** Ready to drink 3% 3% (2)% 3% 5% (13)%

11 PERFORMANCE BY CATEGORY IS STRONG Organic net sales growth Scotch 1% Vodka (8)% North American Whiskey 10% Rum 4% Liqueurs 7% IMFL 2% Gin 6% Raki 5% Tequila 6% Cachaça 7% Chinese White Spirits 59%

12 ORGANIC OPERATING PROFIT GREW 2.4% 1,839 Organic operating profit growth ( m) (125) 39 1,717 (36) F15 H1 reported Exchange Acquisitions and Disposals Organic growth F16 H1 reported Operating profit growth (6.8)% (2.2)% 2.4% (6.6)%

13 ORGANIC OPERATING MARGIN EXPANSION, REPORTED MARGIN IMPACTED BY EXCHANGE 16bps organic operating margin improvement 31.17% 1.04% 0.42% 30.63% (0.66)% (0.04)% (0.23)% (1.07)% F15 H1 reported Exchange Acquisitions and Disposals Gross Margin Marketing spend Overheads Other income and expenses F16 H1 reported

14 DRIVING IMPROVED RETURNS FROM LOWER MARKETING SPEND million H1 F15 * 846 Procurement efficiencies (38) Other drivers: Innovation in US (23) Scotch in China (7) Underlying 3.3% increase 28 H1 F16 * 806 * Adjusted for exchange, acquisitions and disposals

15 ORGANIC OPERATING MARGIN EXPANSION REPORTED MARGIN IMPACTED BY EXCHANGE 16bps organic operating margin improvement 31.17% 1.04% 0.42% 30.63% (0.66)% (0.04)% (0.23)% (1.07)% F15 H1 reported Foreign Exchange Acquisitions and Disposals Gross Margin Marketing spend Overheads Other income and expenses F16 H1 reported

16 AVERAGE NET DEBT REDUCED BY 1 BILLION LARGELY DRIVEN BY DISPOSALS m First Half F16 First Half F15 Movement Closing debt m (9,228) (10,668) 1,440 Average net debt m (9,671) (10,698) 1,027 Net interest charge m (163) (194) 31 Net other finance charge m (13) (45) 32 Net finance charges m (176) (239) 63 Effective interest rate % 3.4% 3.7% (0.3)%

17 EPS DOWN DUE TO EXCHANGE AND DISPOSALS First half F16 First half F15 Movement ( m) Movement (pence) Trading profit* 1,853 1,952 (99) (3.93) Net finance charges (176) (239) PBET 1,677 1,713 (36) Taxation* (318) (314) (4) (0.16) Profit after tax* 1,359 1,399 (40) Non-controlling interests* (74) (54) (20) (0.81) eps* 51.3 pence 53.7 pence (2.4) pence * before exceptionals;

18 FREE CASH FLOW 839 MILLION UP 140 MILLION. INTERIM DIVIDEND UP 5% m First Half F16 First Half F15 Movement Operating profit 1,940 1, Foreign exchange 125 (125) Working capital movement (522) (477) (45) Net capex (196) (234) 38 Net interest (154) (224) 70 Tax (144) (198) 54 Other activities (85) (110) 25 Free cash flow Interim dividend 22.6 pence 21.5 pence 1.1 pence

19 OUTLOOK CONTINUED TOP LINE MOMENTUM Shipment growth in US Spirits in H2 Sustained performance in Europe and Africa Completion of inventory reduction in South East Asia and stronger growth in United Spirits to drive improvement in Asia Pacific Latin American and Caribbean performance to be impacted by continued currency weakness Muted margin improvement for full year

20 SUMMING UP Drive productivity agenda Enhance resource allocation to improve returns Further improvements in forecasting

21 DISCIPLINED EXECUTION AGAINST OUR 6 PRIORITIES HAS DRIVEN MOMENTUM Focus on premium core Increase participation in mainstream spirits Continue to win in reserve Drive innovation at scale Build advantaged routes to consumer Focus on productivity: drive out costs to invest in growth and margin expansion 21

22 SCOTCH PERFORMANCE IS IMPROVING Organic net sales growth % Scotch back in growth, net sales up 1% 2% 1% 0% (1)% (2)% (3)% 1% Delivering growth while managing volatility in emerging markets Net sales trend improvement in all regions except Africa (4)% (5)% (6)% (4)% (6)% Diageo F15 H1 F15 H2 F16 H1 Reserve scotch net sales up 9% Premium core scotch net sales down 2%, however trend is improving 22

23 SCOTCH IMPROVEMENT DRIVEN BY JOHNNIE WALKER AND BUCHANAN S Organic net sales growth % 30% 25% 24% 20% 15% 10% 10% 10% 5% 5% 1% 1% 7% 0% (5)% (10)% (4)% (6)% (6)% (15)% (12)% (14)% (20)% Scotch Johnnie Walker Scotch malts Buchanan's F15 H1 F15 H2 F16 H1 23

24 PREMIUM CORE JOHNNIE WALKER PERFORMANCE IMPACTED BY EMERGING MARKET VOLATILITY 80% 70% 60% 50% 40% 30% 20% 10% 0% (10)% (20)% 1% (2)% Diageo 13% 14% 0% (5)% North America Organic net sales growth % 72% 6% 10% 5% Europe, Russia and Turkey (4)% (11)% Africa 11% 9% 22% Latin America and Caribbean (5)% (9)% 5% Asia Pacific Total Johnnie Walker Johnnie Walker Premium Core Johnnie Walker Reserve 24

25

26 JOHNNIE WALKER S MENTORING PROGRAMME IS A PROVEN GROWTH DRIVER 26

27 REACHING EMERGING MIDDLE CLASS CONSUMERS WITH SIGNATURE SERVES 27

28 SMIRNOFF IS STARTING TO STABILISE Organic net sales growth % 6% 5% 4% 2% 0% (2)% 0% 2% 0% 4% 4% (4)% (3)% (6)% (8)% (7)% (6)% Diageo North America North America Smirnoff Red F15 H1 F15 H2 F16 H1 28

29 29 29

30 67MM social media impressions + 14MM video views among millennials! 165MM PR impressions PR placements to date! 30 30

31 A CONTRIBUTOR TO CULTURE 31

32 NEW EXPERIENCES AND OCCASIONS 32

33 CAPTAIN MORGAN BACK IN GROWTH 20% 15% 10% 5% 0% 3% Organic net sales growth % 1% 6% 16% 11% (5)% (10)% (15)% (20)% (4)% (9)% (8)% (16)% Diageo North America Europe, Russia and Turkey F15 H1 F15 H2 F16 H1 33

34 34

35 Bring to life the Go Full Captain attitude through first hand immersive experiences Build the Tankard as a powerful recruitment tool in the drinking occasion Hijack popular culture with a disruptive platform that drives recruitment and fame Influencer & Advocacy Broadcast & Digital 35

36 STRONG TURNAROUND IN BAILEYS 12% 10% 8% 6% 4% 2% 0% (2)% (4)% (6)% (8)% Organic net sales growth % 6% 4% (2)% (3)% (4)% (4)% (5)% (6)% Diageo North America Europe 9% F15 H1 F15 H2 F16 H1 36

37 BAILEYS EXECUTION DRIVEN BY HOLISTIC ACTIVATION PLAN THINK PLEASURE, DRINK BAILEYS LIQUID ON LIPS ACT ON IMPULSE INNOVATION 37

38 IMPROVED GUINNESS PERFORMANCE Organic net sales growth % 9% Guinness back in growth, net sales up 9% Improved momentum in GB and Ireland (1)% 0% Diageo Guinness Double digit growth in Africa F14 F15 F16 H1 Source: Diageo Internal Management Reporting 38

39 IN EUROPE WE HAD STRONG ACTIVATION AGAINST THE RUGBY WORLD CUP COULD VE SETTLED INSTEAD WENT FOR HISTORY 39 39

40 OUR INNOVATION PLATFORM.. THE BREWERS PROJECT CONTINUES TO DRIVE GROWTH 40

41 OOH IN AFRICA WE ACTIVATED AGAINST F16 DSTV THE KEY / IN MALE BAR SPORT WATCHING OCCASION COMMS - FOOTBALL Squeezeback & statics Kenyan Adapt Trade & In Bar POS Copyright 2014 Hey Human Limited trading as HeyHuman. All rights reserved.

42 MAINSTREAM SPIRITS OPPORTUNITY Significant growth opportunity Diageo well positioned with advantaged footprint Continued momentum in Latin America and Kenya Planned changes in route to consumer for mainstream spirits in Nigeria

43 INDIA PRESTIGE AND ABOVE BRANDS GROWTH ACCELERATING 80% Organic net sales growth % 76% 70% 60% 57% 50% 40% 30% 20% 10% 0% 8% 14% Prestige and above brands* Royal Challenge 0% 4% McDowell's * Excludes Diageo brands distributed by USL F16 H1 F16 Q2 43

44 STRONG GROWTH IN RESERVE BRANDS HOWEVER OVERALL GROWTH WAS IMPACTED BY CÎROC IN NORTH AMERICA Diageo Organic net sales growth % (2)% JW Reserve Scotch malts 10% 13% Ketel One (1)% Don Julio Bulleit 27% 29% Ciroc (37)% (50)% (40)% (30)% (20)% (10)% 0% 10% 20% 30% 40% 44

45 DIAGEO RESERVE BRANDS WERE THE BIG WINNERS OF THE WORLD S 50 BEST BARS 2016 ANNUAL REPORT 45

46 RECRUITING

47 INVESTING IN NEW TO WORLD WHISKEYS 47

48 INVESTING IN NEW TO WORLD WHISKEYS 48

49 EXPANDING SALES COVERAGE AND IMPROVING EXECUTION

50 SPAIN ON PREMISE ROUTE TO CONSUMER: THE JOURNEY Getting to the right places doing the right job with the right skills in the most efficient way allowing for sustainable advantage Sales People FROM 5 TO 69 Outlets Cities 2 46 Outlets per Sales person Calls per day

51 SPAIN ON PREMISE ROUTE TO CONSUMER: THE JOURNEY NORTH: 14/ 1864 NORTHEAST: 13/ 1729 CENTRE 14/1868 EAST 13/ 1727 # FS # Outlets RTC FY SOUTH 15/ 1995 #SALES PEOPLE/#OUTLETS. RTC FY Full Roll Out FY

52 PRODUCTIVITY FOCUS 2014 Global Efficiency Program is expected to deliver 59 million savings in F16, half of which were delivered in the first half Productivity work underway F17 targets identified 500 million productivity by F19, reinvested for growth 100 bps organic margin improvement F17 to F19 52

53 THE DIAGEO OPPORTUNITY A leader in an attractive, growing and profitable industry Broadest portfolio of leading brands and widest geographic footprint Productivity culture driving cost efficiency and cash conversion Exceptional brand building skills in marketing and innovation A disciplined sell out focused organisation executing our sales agenda with pace Delivering stronger sustained performance 53

54 54

55 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 statements that express forecasts, expectations, plans, outlook and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability or cost of financing to Diageo, anticipated cost savings or synergies, the completion of Diageo's strategic transactions and restructuring programmes, anticipated tax rates, expected cash payments, outcomes of litigation, anticipated deficit reductions in relation to pension schemes, general economic conditions and all statements on the slide outlook statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including factors that are outside Diageo's control. These factors include, but are not limited to: changes in political or economic conditions in countries and markets in which Diageo operates, including changes in levels of consumer spending, failure of customer, supplier and financial counterparties or imposition of import, investment or currency restrictions; changes in consumer preferences and tastes, demographic trends or perceptions about health related issues, or contamination, counterfeiting or other circumstances which could harm the integrity or sales of Diageo s brands; developments in any litigation or other similar proceedings (including with tax, customs and other regulatory authorities) directed at the drinks and spirits industry generally or at Diageo in particular, or the impact of a product recall or product liability claim on Diageo s profitability or reputation; the effects of climate change and regulations and other measures to address climate change including any resulting impact on the cost and supply of water; changes in the cost or supply of raw materials, labour and/or energy; legal and regulatory developments, including changes in regulations regarding production, product liability, distribution, importation, labelling, packaging, consumption or advertising; changes in tax law, rates or requirements (including with respect to the impact of excise tax increases) or accounting standards; and changes in environmental laws, health regulations and the laws governing labour and pensions; the costs associated with monitoring and maintaining compliance with anti-corruption and other laws and regulations, and the costs associated with investigating alleged breaches of internal policies, laws or regulations, whether initiated internally or by external regulators, and any penalties or fines imposed as a result of any breaches; ability to maintain Diageo s brand image and corporate reputation, and exposure to adverse publicity, whether or not justified, and any resulting impacts on Diageo s reputation and the likelihood that consumers choose products offered by Diageo s competitors; increased competitive product and pricing pressures and unanticipated actions by competitors that could impact Diageo s market share, increase expenses and hinder growth potential; the effects of Diageo s strategic focus on premium drinks, the effects of business combinations, partnerships, acquisitions or disposals, existing or future, and the ability to realise expected synergies and/or costs savings; Diageo s ability to complete existing or future business combinations, restructuring programmes, acquisitions and disposals; contamination, counterfeiting or other events that could adversely affect the perception of Diageo s brands; increased costs or shortages of talent; disruption to production facilities or business service centres, and systems change programmes, existing or future, and the ability to derive expected benefits from such programmes; changes in financial and equity markets, including significant interest rate and foreign currency exchange rate fluctuations and changes in the cost of capital, which may reduce or eliminate Diageo s access to or increase the cost of financing or which may affect Diageo s financial results and movements to the value of Diageo s pension funds; renewal of supply, distribution, manufacturing or licence agreements (or related rights) and licenses on favourable terms when they expire; and technological developments that may affect the distribution of products or impede Diageo s ability to protect its intellectual property rights. All oral and written forward-looking statements made on or after the date of this presentation and attributable to Diageo are expressly qualified in their entirety by the above factors and the Risk factors contained in Diageo s results announcement dated 30 July 2015 Any forward-looking statements made by or on behalf of Diageo speak only as of the date they are made. Diageo does not undertake to update forward-looking statements to reflect any changes in Diageo's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Diageo may make in any documents which it publishes and/or files with the US Securities and Exchange Commission. All readers, wherever located, should take note of these disclosures. This document includes names of Diageo's products, which constitute trademarks or trade names which Diageo owns, or which others own and license to Diageo for use. All rights reserved. Diageo plc The information in this presentation does not constitute an offer to sell or an invitation to buy shares in Diageo plc or an invitation or inducement to engage in any other investment activities. This presentation includes information about Diageo s target debt rating. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation. Each rating should be evaluated independently of any other rating. Past performance cannot be relied upon as a guide to future performance. The contents of the company s website ( should not be considered to form a part of or be incorporated into this presentation 55

56 QUARTERLY GROWTH RATES Q1 Q2 North America (10.4) 4.7 Europe, Russia and Turkey Africa Latin America and Caribbean Asia Pacific (0.9) 4.9 Diageo (1.2) 4.0

57 FORWARD LOOKING STATEMENTS - 1/2 Exchange rate movements Using current exchange rates ( 1 = $1.45; 1 = 1.33), the exchange rate movement for the year ending 30 June 2016 is estimated to adversely impact net sales by approximately 260 million and operating profit by approximately 85 million. This estimate excludes the impact of IAS 21 and IAS 39. Net finance charges Effective interest rate is expected to increase slightly to about 3.5% for the year ending 30 June Dividend Dividend increase expected to be maintained at a mid single digit increase until we rebuild dividend cover Taxation Effective tax rate is expected to be at 19% for the year ending 30 June Capital expenditure Capital expenditure is expected to be approximately 550 million in the fiscal year ending 30 June Productivity gains announced in July 2015 Savings of 500 million per year by year ending June 2019 will fund investment in growth and 100bps of operating margin expansion over 3 years.

58 FORWARD LOOKING STATEMENTS - 2/2 Net sales and operating margin Full year: For the full year we expect volume growth to drive stronger top line performance, margin to slightly improve and strong cash conversion to continue. This will set us up to deliver better momentum in F17, with productivity gains supporting margin expansion and investment in growth. We remain confident of achieving our objective of mid-single digit top line growth and 100bps of organic operating margin improvement in the three years ending fiscal 19 Second half: In the second half we expect to see an overall improved top line performance led by shipment growth in US spirits. Margin will come in roughly flat in the second half as marketing will not decline despite efficiencies and other income will be lower. As a result, we don t expect much margin expansion for the full year, consistent with our guidance back in July. Organisational changes announced in January 2014 Savings of 200 million a year will be achieved by end of fiscal 16. Of the 200 million of total savings 50 million will fund future change programmes. In the year ended 30 June 2015 savings of 127 million were delivered. In the six months ended 31 December million of savings were achieved.

59 RECONCILIATION OF CASH FLOW MOVEMENTS Statement of cash flows ( m) F15 F16 Movement Operating profit after exceptional items 1,668 1,613 (55) Net increase in working capital (477) (522) (45) Depreciation, amortisation and impairment Dividends received 10 3 (7) Post employment payments less amounts included in operating profit (32) (32) 0 Other Items 20 (8) (28) Net interest and tax (422) (298) 124 Net capex (234) (196) 38 Movement in loans and other investments (24) (2) 22 Free Cash Flow Reconciliation to slide 18: Movement on operating profit as shown on slide [18] Operating profit after exceptional items as above (55) Depreciation, amortisation and impairment as above 91 Other items as above (28) Post employment charges in operating profit (10) Operating profit movement excluding non-cash items (2) Operating profit excluding FX Slide Movement on other operating activities as shown on slides 18 Post employment payments less amounts included in operating profit as above 0 Post employment charges Included in operating profit movement 10 Movement in loans and other investments as above 22 Dividends received as above (7) Other operating activities 25 FX on operating profit Slide 18 (125) Operating profit movement excluding non-cash items (2)