FULL YEAR RESULTS 2015 YEAR ENDED 30 JUNE 2015

Transcription

1 FULL YEAR RESULTS 2015 YEAR ENDED 30 JUNE 2015

2 IVAN MENEZES Chief EXECUTIVE

3 THE DIAGEO OPPORTUNITY A leader in an attractive, growing and profitable industry Broadest portfolio of leading brands and widest geographic footprint Scale to drive efficient operating model Exceptional brand building skills in marketing and innovation Sell out focused organisation building a world class sales capability

4 A VOLATILE GLOBAL ENVIROMENT OVER THE LAST TWO YEARS Uneven recovery in the US and on-going Eurozone crisis in Western Europe Emerging markets impacted by slower GDP growth and currency volatility Political instability and government intervention in some markets negatively impacting consumer behaviour

5 CHANGING THE WAY WE OPERATE Focus on sell out, not sell in Build a stronger route to consumer and sales capability Recruit and then re-recruit consumers with a new marketing approach A more agile and efficient supply chain Focus on core assets

6 EMBEDDING SELL OUT HAS STRENGTHENED THE BUSINESS 4 2 Volume of depletions* and shipments vs last year (%) 1.6% 2.1% 1.3% 1.1% 0 (2) (4) (6) (0.9)% (1.0)% (2.3)% (4.3)% Q1 H1 P9 FY Shipments Depletions *For US spirits, depletion data is depletions from distributors. Covers 80% of Diageo s volume. Excludes markets where accurate data is not available.

7 IN F15 WE Further embedded our sell out discipline Changed our route to consumer Continued to lead the industry in innovation Recruited and re-recruited consumers with our marketing Extended our leadership in reserve Drove out costs to invest in growth Strengthened our portfolio Improved our cash conversion Set stronger environmental and sustainability goals for 2020

8 APPLYING A LONG TERM PERSPECTIVE TO MANAGE A VOLATILE ENVIRONMENT Net sales up 5%, flat on an organic basis Global efficiency programme ahead of plan, delivered 127m of savings. Savings reinvested to drive sell out Operating margin up +0.2pps on an organic basis Free cash flow of 2bn for the year and sale of Bushmills and The Gleneagles Hotel generated over 0.5bn Final dividend up 9%* *Recommended final dividend, subject to approval.

9 NET SALES UP 5%, FLAT ON AN ORGANIC BASIS Net sales, bn 11.4 Organic growth Reported Acquisitions and disposals Exchange Volume Price/mix 2015 Reported

10 LOWER NET SALES IN US SPIRITS, SOUTH EAST ASIA AND WEST LAC WAS OFFSET BY GROWTH IN MANY MARKETS m (50) (100) (150) % movement US Spirits & Wines Wholesale channels SEA and West LAC Organic net sales movement R&EE Indonesia Africa Other EMs Other DMS Volume (3.4) (40.7) (7.6) (28.8) 7.5 (2.7) 0.2 Net sales (1.5) (55.0) (9.2) (26.6)

11 NET SALES TRENDS HAVE HAD SIGNIFICANT IMPACT ON THE PERFORMANCE OF BLENDED SCOTCH m (50) (100) (150) (200) % movement Blended scotch Organic net sales movement Smirnoff North American flavours & whiskey Captain Morgan in the US Volume (5.0) (11.6) Net sales (7.8) (12.1) Beer Single grain and malts Reserve excluding whiskey

12 MARKETING REINVESTMENT HELD FLAT OVER THE LAST THREE YEARS AS PROCUREMENT EFFICIENCIES WERE REINVESTED INTO BRANDS 25% 20% Marketing spend as a percentage of net sales* 15% 10% 5% 0% Diageo (ex USL) North America Europe Latin America and Caribbean Africa Asia Pacific (ex USL) * On an organic basis F13 F14 F15

13 ORGANIC OPERATING MARGIN IMPROVED AS A RESULT OF SIGNIFICANT COST SAVINGS 31% 30.55% 30% Organic OM* +24bps 29% 28% (183)bps (61)bps 36bps 52bps 28.35% 27% (64)bps 26% 25% F14 Reported Acquisitions and disposals Foreign exchange Gross margin Marketing spend Other operating expenses F15 Reported *For the purposes of showing organic operating margin changes, exchange impacts in respect of profit on intergroup sales of products and the intergroup recharges that are reported in other operating expenses have been re-allocated across the respective P&L lines.

14 USL NOW FULLY CONSOLIDATED F15* Net sales 921 Operating profit** 53 Finance charges (60) Tax (8) Non controlling interest 4 Net profit** (11) *Excludes net sales of Diageo brands. Also excludes exceptional items. **Excludes 5 million of integration costs.

15 NET DEBT INCREASED, LARGELY DRIVEN BY USL TRANSACTION, WHILE FINANCIAL STRENGTHS DROVE LOWER INTEREST RATE Net borrowings m F14 F15 Mvmt Net finance charges m F14 F15 Mvmt Average net debt (9,174) (10,459) (1,285) Consolidation of USL debt (452) (452) Closing net debt (8,850) (9,527) (677) Closing net debt/ EBITDA Net interest charge ex USL USL finance charges (348) (300) 48 - (60) (60) Other (40) (52) (12) Net finance charges (388) (412) (24) Effective rate 3.8% 3.5% (0.3)%

16 EPS F14 F15 Movement ( m) Trading profit* 3,386 3,241 (145) Net finance charges (388) (412) (24) PBET 2,998 2,829 (169) Taxation* (546) (517) 29 Profit after tax* 2,452 2,312 (140) Non-controlling interests (58) (87) (29) eps* 95.5 pence 88.8 pence (6.7) pence Full year dividend** 51.7 pence 56.4 pence 4.7 pence *Excluding exceptional items. ** Recommended and subject to approval by shareholders.

17 FREE CASH FLOW F14 F15 Movement ( m) Operating profit ex FX* 3,192 3, FX on operating profit 156 (156) Working capital (597) Net interest and tax (901) (822) 79 Net capex (562) (569) (7) Other operating activities (53) 6 59 USL (57) (57) Free cash flow 1,235 1, A reconciliation of cash flow movements can be found in the supplementary schedules. *Operating profit adjusted for non cash items including depreciation and amortisation. ** Other movements includes pension related payments, dividends received from associates and joint ventures, movements in loans receivables and other investments, and payments in respect of settlement of Thalidomide litigations.

18 PERFORMANCE IMPROVEMENT DELIVERED IN Q4 TO CONTINUE INTO FY16 8% 6% 4% 2% 0% (2)% (4)% (6)% (8)% (0)% 1% Diageo 0% Organic growth % (6)% North America (1)% 2% 6% 7% (3)% 6% Europe Africa Latin America and Caribean (6)% 7% Asia Pacific P9 YTD Q4

19 FOCUS ON DRIVING VOLUME, MIX AND PRODUCTIVITY Volume Mix Productivity Marketing to recruit and re-recruit Strengthen route to consumer Lead in innovation at scale Accelerate mainstream and value spirits Extend leadership in reserve Incubate high value innovations Continue to focus on cash conversion Deliver Global Efficiency Programme Embedding cost discipline Driving sustained productivity gains TO DRIVE STRONG AND SUSTAINED PERFORMANCE

20 RECRUIT AND RE-RECRUIT CONSUMERS TO GROW VOLUME IN A FAST CHANGING ENVIRONMENT

21 DRIVING RECRUITMENT ACROSS OUR PORTFOLIO TO GROW VOLUME

22 DRIVING RECRUITMENT ACROSS OUR PORTFOLIO TO GROW VOLUME

23 DRIVING RECRUITMENT ACROSS OUR PORTFOLIO TO GROW VOLUME

24 DRIVING RECRUITMENT ACROSS OUR PORTFOLIO TO GROW VOLUME

25 DRIVING RECRUITMENT ACROSS OUR PORTFOLIO TO GROW VOLUME

26 EXPANDED COVERAGE AND INCREASED FOCUS ON EXECUTION TO DRIVE SELL OUT Number Sales Reps* Outlet coverage %* Number Outlets Covered* 3,500 3, k k F14 F15 F14 F15 F14 F15 *Figures refer to wave 1 markets, accounting for around 4 bn of Diageo s net sales.

27 EXPANDED COVERAGE AND INCREASED FOCUS ON EXECUTION TO DRIVE SELL OUT

28 EXPANDED COVERAGE AND INCREASED FOCUS ON EXECUTION TO DRIVE SELL OUT

29 EXPANDING COVERAGE AND IMPROVING EXECUTION TO DRIVE SALES

30 INNOVATING AT SCALE, WITH MORE SPEED

31 INNOVATING BEYOND PRODUCTS

32 ACCELERATING PARTICIPATION IN MAINSTREAM SPIRITS SECONDARY IMPORTED BRANDS LOCAL SOURCING AND PRODUCTION

33 INCREASED FOCUS ON OUR VALUE AND STANDARD BRANDS IN DEVELOPED MARKETS

34 A LEADING POSITION IN INDIA WITH USL

35 FOCUS ON DRIVING VOLUME, MIX AND PRODUCTIVITY Volume Mix Productivity Marketing to recruit and re-recruit Strengthen route to consumer Lead in innovation at scale Accelerate mainstream and value spirits Extend leadership in reserve Incubate high value innovations Continue to focus on cash conversion Deliver Global Efficiency Program Embedding cost discipline Driving sustained productivity gains TO DRIVE STRONG AND SUSTAINED PERFORMANCE

36 DEDICATED BUSINESS MODEL DRIVING CONTINUED GROWTH OF RESERVE BRANDS

37 INCUBATING THE BRANDS OF TOMORROW

38 FOCUS ON DRIVING VOLUME, MIX AND PRODUCTIVITY Volume Mix Productivity Marketing to recruit and re-recruit Strengthen route to consumer Lead in innovation at scale Accelerate mainstream and value spirits Extend leadership in Reserve Incubate high value innovations Continue to focus on cash conversion Deliver Global Efficiency Programme Embedding cost discipline Driving sustained productivity gains TO DRIVE STRONG AND SUSTAINED PERFORMANCE

39 CREATING A COST FOCUSED CULTURE

40 SIGNIFICANT OPPORTUNITY TO BOOST PRODUCTIVITY ACROSS THE BUSINESS

41 SIGNIFICANT OPPORTUNITY TO BOOST PRODUCTIVITY ACROSS THE BUSINESS Builds on the changes made in the last 2 years Diageo has proved it delivers effective restructuring programmes Disciplined productivity focus

42 SIGNIFICANT OPPORTUNITY TO BOOST PRODUCTIVITY ACROSS THE BUSINESS Diageo cost base of c 7.5bn Plus greater efficiency from 3bn of trade spend Appointing Chief Productivity Officer Total productivity savings of 500m per annum by F19 Two-thirds of savings to be re-invested into driving growth

43 STRONG AND SUSTAINED PERFORMANCE Driving volume, mix and productivity Improved volume growth will accelerate top line growth in F16 Productivity gains totalling 500m pa by F19 Medium term growth model of MSD top line and 100 bps of margin improvement in 3 years

44 Q&A

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46 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

47 QUARTERLY GROWTH RATES Q1 Q2 Q3 Q4 North America 0.1 (0.2) 0.9 (5.6) Europe (1.4) 0.4 (1.3) 1.8 Africa Latin America and Caribbean (4.0) 0.5 (10.2) 5.6 Asia Pacific (7.4) (4.0) (6.0) 7.0 Diageo (1.7) 0.8 (0.7) 0.7

48 FORWARD LOOKING STATEMENTS - 1/2 Exchange rate movements Using current exchange rates ( 1 = $1.55; 1 = 1.41), the exchange rate movements for the year ending 30 June 2016 are estimated to adversely impact both net sales and operating profit by approximately 370 million and 100 million respectively. It is estimated that the hyperinflation charge for the year ending 30 June 2016 will be approximately 25 million. Net finance charges Effective interest rate is expected to increase to around 3.6% in the year ending 30 June Dividend EPS to dividend cover at 1.6 times is now outside our coverage ratio, and we will look to rebuild cover over time, maintaining dividend increases at a mid-single digit rate until we are back in range. Working Capital Working capital excluding maturing stock reduced by almost 360 million in the year ended 30 June 2015 and it is expected to come down a further 100 million in the year ending 30 June Taxation Effective tax rate is expected to increase 19% in the year ending 30 June Capital expenditure Capital expenditure is expected to be approximately 590 million the fiscal year ending 30 June 2016.

49 FORWARD LOOKING STATEMENTS - 2/2 Exceptional items Cash payments related to restructuring programs are expected to be approximately 65 million in the year ending 30 June Productivity gains Savings of 500 million per year by year ending June 2019 will fund investment in growth and 100bps of margin expansion over 3 years. Net sales Improved trajectory expected in the year ending 30 June 2016 and mid single digit growth expected from the year ending 30 June 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.

50 RECONCILIATION OF CASH FLOW MOVEMENTS SHOWN ON SLIDE 17 Statement of cash flows ( m) F14 F15 F 15 USL F15 ex USL Movement ex USL Operating profit after exceptional items 2,707 2, , Net increase in working capital (597) 117 (20) Depreciation, amortisation and impairment (205) Dividends received (45) Post employment payments less amounts included in operating profit (196) (70) (6) (64) 132 Other Items (80) (11) (11) 69 Net interest and tax (901) (905) (83) (822) 79 Net capex (562) (586) (17) (569) (7) Movement in loans and other investments 7 (2) (2) (9) Free Cash Flow 1,235 1,963 (57) 2, Reconciliation to slide 17: USL free cash flow for the period ended 30 June 2015 of (57)m is shown separately. Movement on operating profit as shown on slide [17] Operating profit after exceptional items as above 37 Depreciation, amortisation and impairment as above (205) Other items as above 69 Post employment charges in operating profit 19 Operating profit movement excluding non-cash items (80) Operating profit excluding FX Slide FX on operating profit Slide 17 (156) Operating profit movement excluding non-cash items (80) Movement on other operating activities as shown on slides 17 Post employment payments less amounts included in operating profit as above 132 Post employment charges Included in operating profit movement (19) Movement in loans and other investments as above (9) Dividends received as above (45) Other operating activities 59