Interim Results. Six months ended 31 December 2013

Transcription

1 Interim Results Six months ended 31 December 2013

2 Ivan Menezes Chief Executive Officer

3 uilding on strength while managing emerging market challenges North America Performance sustained LEADING Brands with Western Europe improving Category breadth Emerging markets face cyclical challenges while long term structural growth trends unchanged 3

4 Deirdre Mahlan Chief Financial Officer

5 Strengthening the business and meeting challenges Weakness in emerging markets impacted top line performance US Spirits continue to deliver strong net sales growth and margin expansion Improved performance in Western Europe Momentum behind our reserve brands in both emerging and developed markets Marketing grew as a percentage of sales Positive price/mix and a continued focus on cost control drove 0.4 ppts of organic operating margin expansion Our geographic diversity and broad reach across categories mitigated individual market challenges 5

6 Individual emerging market challenges offset by sustained performance in North America Net sales, m 5, (143) (86) 83 5,932 (145) 2012 Reported Acquisitions & disposals FX Volume* Organic price/mix* Six months ended 31 December. *Volume and price/mix impacts are calculated based on organic net sales movement. Venezuela adjustment to reported exchange rate 2013 Reported 6

7 Weakness in beer and standard price points in spirits impacted top line growth Volume and net sales growth % 29% 26% Volume Net sales 9% 9% 12% 2% 3% 0% 5% 2% (3)% (4)% (3)% (3)% (1)% (12)% Beer Scotch Vodka Liqueur Rum Tequila RTD Other Six months ended 31 December Organic movement. 7

8 Reserve brands offset a decline of Smirnoff in North America 26% Volume and net sales growth % Volume Net sales 16% 13% 1% 2% 3% 1% 4% (3)% (5)% (7)% (3)% (10)% (10)% (2)% (17)% Reserve brands Johnnie Walker Captain Morgan Crown Royal Smirnoff Value brands RTD Other brands Six months ended 31 December Organic movement. Excluding RTD. 8

9 Improving trends in Western Europe 14% 11% 12% 12% Volume and net sales growth % Volume Net sales 0% (7)% (4)% (5)% (2)% (2)% (4)% (1)% (11)% (14)% Captain Morgan Reserve brands Beer JεB Baileys Smirnoff Other brands Six months ended 31 December Organic movement. Excluding RTD. 9

10 Growth in spirits and ready to drink was offset by declines in Senator and Harp in AEET Volume and net sales growth % 91% 70% Volume Net sales 25% 4% 2% 2% (16)% (4)% (1)% (6)% Beer Africa spirits RTDs Russia EE & Turkey spirits Other Six months ended 31 December Organic movement. 10

11 Destocking offsets growth in cachaca and rum in Latin America Volume and net sales growth % 147% Volume Net sales 12% 29% 21% 0% (13)% (14)% (5)% (5)% (1)% West LAC Venezuela Cachaça Rum Other Six months ended 31 December Organic movement. 11

12 Asia Pacific decline driven by weakness in South East Asia and baijiu in China 11% Volume and net sales growth % 14% 4% 9% Volume Net sales 2% (6)% (5)% (1)% (1)% (66)% Scotch Rum Vodka Baijiu Other categories Six months ended 31 December Organic movement. 12

13 Selective price increases and good mix offset volume decline Net sales, m 126 5,761 5, (33) (145) Price/mix drivers 2012 Volume impact Reserve Beer Baijiu Regional price/mix 2013 Six months ended 31 December. Organic movement. 13

14 Our geographic breadth mitigates the challenges of individual markets 5% 4% 5% (1)% (1)% (1)% 1% Net sales growth 2% 2% 3% 11% 8% 1% 2.2% 1.6% 1.8% (6)% (10)% North America Western Europe* AEET Latin America and Caribbean Asia Pacific Diageo Q1 Q2 H1 Organic movement. Q1 net sales growth restated for exchange rate 1$ = 19VEF. *Western Europe includes Global Travel Europe. 14

15 Incremental organic marketing investment % (2)% m, % growth 8% 8% 9 (3)% (5) (3) North America Western Europe* AEET Latin America and Caribbean Asia Pacific 2013 Six months ended 31 December. Organic movement. *Western Europe includes Global Travel Europe. 15

16 Cost efficiencies and gross margin improvement drive operating margin expansion Margin*, ppts 0.3 ppts 0.2 ppts 34.1% 33.7% (0.1) ppts 2012 Gross margin Marketing spend Overheads 2013 Six months ended 31 December. *Organic movement. Operating margin is operating profit as % of net sales. 16

17 Timing of payments have negatively impacted first half free cash flow m (165) (50) (13) (112) (62) (3) Operating profit Working capital movement Dividend income Net interest Tax Pension contribution Other operating activities 2013 Six months ended 31 December. 17

18 Reported operating profit growth of 3% 2012 m 2013 m Movement m Operating profit* 2,001 2, Associate income net of tax Trading profit* 2,141 2, Net finance charges (229) (225) 4 PBET 1,912 2, Taxation* (349) (391) (42) Non-controlling interests (56) (55) 1 Profit* 1,507 1, eps* pence Six months ended 31 December. *Excluding exceptional items. 18

19 Interest costs, finance charges 2012 m 2013 m Movement m Core interest (199) (187) 12 IAS 39 (2) (1) 1 Net interest charge (201) (188) 13 Finance income/(charge) from post employment obligations Venezuela hyperinflationary adjustment (22) (7) 15 (2) (27) (25) Other finance charges (4) (3) 1 Net other finance charge (28) (37) (9) Net finance charges (229) (225) 4 Six months ended 31 December. 19

20 eps grew 4% 2012 m 2013 m Movement m Operating profit* 2,001 2, Associate income net of tax Trading profit* 2,141 2, Net finance charges (229) (225) 4 PBET 1,912 2, Taxation* (349) (391) (42) Non-controlling interests (56) (55) 1 Profit* 1,507 1, eps* pence Six months ended 31 December. *Excluding exceptional items. 20

21 In Summary H1 saw top line weakness while cost focus delivered efficient growth Weak emerging market currencies have impacted top line growth and reported results 21

22 In Summary Performance in Africa and Asia Pacific expected to drive improvement in H2 Committed to further margin improvement in H2 Delayering the organisation and driving further operating efficiency Investing to deliver our performance ambition 22

23 uilding on strength while managing emerging market challenges North America Performance sustained LEADING Brands with Western Europe improving Category breadth Emerging markets face cyclical challenges while long term structural growth trends unchanged 23

24 Enhancing our #1 position in North America 5% top line growth Super and ultra premium growth drives positive price/mix Further growth from innovation Further strengthened route to consumer US spirits, 4 of top 10 year 1 launches and 3 of top 10 year 2 launches* US Spirits outperformance Diageo Creates DeLeon Tequila Venture With Sean Combs Guinness Basketball ad 18 million hits on You Tube** *Nielsen for period ended December 2013 ** YouTube as at 24 th January Organic movement. Six months ended 31 December

25 Western Europe continued its Q1 improvement Net sales decline slowed to 1% Great Britain and France were in growth Innovation net sales grew c50%* Double digit growth of reserve Johnnie WALKER red label relaunched in Great Britain and net sales doubled 10% of Diageo CîROC growth driven by Western Europe Media investment increased Baileys CHOCOLAT LUXE successfully launched in 15 countries Six months ended 31 December Organic movement. *Internal estimate. 25

26 The growth opportunities in AEET remain significant Nigeria impacting beer volumes 2% top line growth Johnnie Walker Net sales grew 39% in Nigeria Diageo leads whiskey and liqueurs in Russia* Growth of spirits Innovation net sales doubled in Africa Re-launch of Guinness in Nigeria and Ghana with Made of More * Source: Nielsen KAI Moscow & St-Petersburg for 12 months to October 2013, Whiskey includes scotch, irish and North American whiskey. Six months ended 31 December Organic movement. 26

27 Diversifying the portfolio managing volatility in LAC 8% top line growth Managing price in Venezuela Gaining share in scotch Extending beyond scotch Diageo Mexico In top 10 best places to work Almost half of growth from categories outside of scotch Ypióca fully integrated, net sales+31% Brazil is the 2 nd largest Cîroc market in the world Six months ended 31 December Organic movement 27

28 Weakness in South East Asia and baijiu slows growth in Asia Pacific Top line declined 6% Baijiu impacted by antiextravagance measures Scotch share gains in Korea* USL sales promotion arrangement Diageo opens third Johnnie Walker House in Seoul Baileys +37% in China India net sales up Windsor REGAINS and EXTeNDS SHARE* +35% Captain Morgan net sales increase 81% in Australia *Source: Kalia for period ended November 2013, volume share. Six months ended 31 December Organic movement. 28

29 Step up our executional focus Six ʺMUST DOsʺ #1 Strengthen and accelerate our premium core brands #2 Win in reserve in every market #3 Innovate at scale to meet new consumer needs #4 Build and then constantly extend our advantage in route to consumer #5 Drive out costs to invest in growth #6 Ensure we have the talent to deliver our performance ambition 29

30 Step up our executional focus #1 Strengthen and accelerate our premium core brands 30

31 Outstanding performance of Reserve #2 Win in reserve in every market +19% net sales Ciroc brands Johnnie Walker Gold Label Reserve Don Julio Talisker variants +22% +59% +26% +44% Six months ended 31 December Organic movement. 31

32 Innovating at scale and driving growth #3 Innovate at scale to meet new consumer needs 32

33 Route to consumer: setting up for success #4 Build and then constantly extend our advantage in route to consumer Russia Western Europe Wave 1 Mexico Costa Rica Colombia Peru Dom Rep Venezuela Venture Caribbean Ghana Brazil Nigeria Cameroon Angola Lebanon India Ethiopia Kenya Uganda Tanzania Mozambique China Korea Vietnam Philippines Wave 2 Wave 3 Chile Buenos Aires South Africa 33

34 Step up our executional focus Six ʺMUST DOsʺ #1 Strengthen and accelerate our premium core brands #2 Win in reserve in every market #3 Innovate at scale to meet new consumer needs #4 Build and then constantly extend our advantage in route to consumer #5 Drive out costs to invest in growth #6 Ensure we have the talent to deliver our performance ambition 34

35 Changing to achieve our performance ambition Delayer the organisation Capture further operational efficiency Build on the 2011 operating model review Act like owners and be bold in execution 35

36 The four areas of change are Shared services and IS Supply chain and logistics Global and regional structures Ensuring market organisations add value Funding continuous change and driving efficient growth 36

37 To create one of the best performing, most trusted and respected consumer products companies in the world 37

38 Outlook statements Net finance charges The effective interest rate for the year ending 30 June 2014 is expected to be below 4%. Exchange rate movements Exchange rate movements for the year ending 30 June 2014 are expected to adversely impact operating profit by 280 million and decrease finance charges by 10 million (excluding IAS21 and IAS39). Organisational changes announced in January 2014: Detailed plans to be developed to de-layer the organisation and deliver further operating efficiencies Savings of 200 million a year by year ending 30 June 2017 will fund future change programmes, investment in growth and improved margin Restructuring costs, expected to be taken as an exceptional charge, will be between 200 million and 250 million Medium term guidance Achieve both top tier top line net sales growth and consistent margin improvement. Cumulative operating margin improvement of 200 basis points in the 3 years ending 30 June The information on this slide is inherently forward-looking. Please see slide Cautionary statement concerning forward-looking statements. 38

39 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, expected investments, 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: global and regional economic downturns; 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; legal and regulatory developments, including changes in regulations regarding production, product liability, distribution, importation, labeling, 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; 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; developments in the Colombian litigation, Korean customs dispute, thalidomide litigation or any similar proceedings; changes in consumer preferences and tastes, demographic trends or perception about health related issues, or contamination, counterfeiting or other circumstances which could harm the integrity or sales of Diageo s brands; changes in the cost or supply of raw materials, labour, energy and/or water; 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; levels of marketing, promotional and innovation expenditure by Diageo and its competitors; renewal of supply, distribution, manufacturing or licence agreements (or related rights) and licenses on favourable terms when they expire; termination of existing distribution or licence manufacturing rights on agency brands; 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; technological developments that may affect the distribution of products or impede Diageo s ability to protect its intellectual property rights; and 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 pensions funds. 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 Annual Report on Form 20-F for the year ended 30 June 2013 as filed with the US Securities and Exchange Commission (SEC). 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 SEC. 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. 39