Interim Results. Six months ended 31 December 2012

Transcription

1 Interim Results Six months ended 31 December 2012

2 Paul Walsh CEO

3 A strong business, getting stronger Reiterating our medium term guidance Increased presence in the faster growing markets, pricing globally, growth in US spirits, and premiumisation are driving net sales growth and margin improvement Continued investment behind our strategy Achieved: 9% organic operating profit growth* 9% eps growth** > 125 million increase in free cash flow And we have increased the interim dividend by 9% Six months ended 31 December * Organic movement. ** Excluding exceptional items. 3

4 Deirdre Mahlan CFO

5 Continued efficient growth 5% net sales growth with 4ppt price/mix* Gross margin up 70 bps* Operating profit growth of 9% with 110 bps operating margin expansion* 9% increase in eps pre exceptionals Free cash flow of 0.7 billion Six months ended 31 December *Organic movement. 5

6 Faster growing markets drove volume growth 270 1,626 Volume, EUk (828) 84,922 (208) 84, Faster growing markets North America Western Europe* Developed Asia Pacific 2012 Six months ended 31 December. Organic movement. *Western Europe includes Global Travel Europe. 6

7 Price was the key driver of 5% organic net sales growth 89 Net sales, m 287 5,905 (73) (17) 5, Faster growing markets North America Western Europe* Developed Asia Pacific 2012 Six months ended 31 December. Organic movement. *Western Europe includes Global Travel Europe. Corporate net sales grew 5 million. 7

8 Reported net sales up 5% Net sales, m ,039 5, (142) 5% 6% 20% 22% 32% 33% 38% Developed Asia Pacific Western Europe** North America Faster growing markets 42% Reported 2011 Volume* Price/mix* Acquisitions & disposals FX Reported 2012 Six months ended 31 December. % figures represents the relative size of the markets. Corporate represents 1% of total net sales. *Volume and price/mix are calculated based on organic net sales movement. **Western Europe includes Global Travel Europe. 8

9 Incremental marketing spend behind our biggest growth engines Marketing spend, m % (18) (5) 7% 19% 22% 33% 37% Developed Asia Pacific Western Europe* North America Faster growing markets 33% 41% 2011 Faster growing markets North America Western Europe* Developed Asia Pacific 2012 Six months ended 31 December. Organic movement. *Western Europe includes Global Travel Europe. Corporate marketing spend was 4 million in 2012, up 1 million year on year. 9

10 Operating margin expansion from gross margin increase and efficiencies Margin movement*, ppts Total 2011 Operating margin** 33.2 Gross margin 0.7 Marketing spend 0.1 Overheads 0.3 Operating margin Operating margin*** 34.3 Six months ended 31 December. *Organic. **Adjusted for exchange, acquisitions and disposals. Operating margin is operating profit as % of net sales. ***Adjusted for acquisitions and disposals. 10

11 Free cash flow of 0.7 billion, up more than 125 million Free cash flow, m (38) (78) (13) Operating profit Working capital Dividends interest and tax Net Capex Other operating activities* 2012 Six months ended 31 December. Free cash flow for 6 month ended 31 December 2011 has been restated following a change in the disclosure of dividends paid to non-controlling interests and transaction costs incurred in respect of business acquisitions. *Includes depreciation, amortisation and net disposal/(purchase) of investments. 11

12 Operating profit growth drove growth in eps 2011 m 2012 m Movement m Operating profit* 1,866 2, Associate income net of tax Trading profit* 1,988 2, Net finance charges (206) (212) (6) PBET 1,782 1, Taxation* (323) (358) (35) Non-controlling interest (66) (63) 3 Profit* 1,393 1, eps* 55.9 pence 60.9 pence 5.0 pence Six months ended 31 December. *Excluding exceptional items. 12

13 Reported operating profit* up 9% Operating profit*, m 1,866 4% (41) 2,029 3% 18% 22% 40% 40% Developed Asia Pacific Western Europe** 34% North America Faster growing markets 39% Reported 2011 Organic growth Acquisitions FX Reported 2012 Six months ended 31 December. Corporate represents a (4)% charge to group operating profit. *Pre-exceptionals. **Western Europe includes Global Travel Europe. 13

14 Summary Increased volume driven by the faster growing markets Improved pricing environment and continued premiumisation Strong gross margin improvement Overhead efficiencies Financial strength 9% increase in interim dividend 14

15 Paul Walsh CEO

16 A strong business, getting stronger 1. Delivering net sales growth + 2. Delivering margin expansion + 3. Investing to access new growth 16

17 1. Delivering net sales growth Building on our strength in the US Enhancing our presence in the faster growing markets Leading in Scotch whisky Managing the challenges of Western Europe and Korea 17

18 Building on strength in the US Strategic spirits brands net sales up 8% in US* 4 percentage points of price/mix* Significant increase in media spend Industry-leading innovation Continued efficiency boosting operating margin Six months ended 31 December *Organic movement. 18

19 Enhancing our presence in the faster growing markets Reaching the emerging middle class consumer Delighting the consumer of luxury goods + 19

20 Reaching the increasing number of middle class consumers Traditional consumer base Emerging middle class consumer base Ultra Premium Super Premium Premium Emerging opportunity 20

21 Reaching the increasing number of middle class consumers 21

22 Reaching the increasing number of middle class consumers Johnnie Walker volume CAGR in Africa 33% South Africa Total Nigeria East Africa hub Africa regional markets Third party distribution (3)% estimate Year ended 30 June. 22

23 Delighting the consumer of luxury goods 23

24 Strength in malt whisky 24

25 2. Delivering margin expansion Anchoring gross margin in price increases Increasing marketing effectiveness Delivering efficiencies 25

26 Pricing drives margin expansion m Net sales growth, m Price Mix Latin America North America Africa Asia Pacific Europe Six months ended 31 December

27 Increasing marketing effectiveness in US spirits Media +25% POS (14)% 27

28 Efficiencies contribute to margin expansion % 20 Growth, % Net sales Overheads Latin America Russia & Eastern Europe Faster growing Asia Pacific Africa North America Developed Asia Pacific Western Europe Diageo Six months ended 31 December

29 3. Investing to access new growth Route to market improvement Delivering the acquisitions 29

30 A strong business, getting stronger #1 Spirits company in the United States Route to market improvement The largest premium drinks company in Europe #1 International spirits company in Asia Pacific #1 International spirits company in Latin America A leading beer and spirits company in Africa 30

31 Enhancing our routes to market through acquisitions Mey İçki, Turkey Ypióca, Brazil Meta Abo, Ethiopia Vodka Hanoi, Vietnam Shui Jing Fang, China 31

32 Enhancing our routes to market through acquisitions Mey İçki, Turkey Ypióca, Brazil Meta Abo, Ethiopia Vodka Hanoi, Vietnam Shui Jing Fang, China United Spirits, India* *Announced 9 November

33 A strong business, getting stronger Delivering net sales growth + Delivering margin expansion + Investing to access new growth 33

34 Bringing it all together 34

35 A strong business, getting stronger

36 Supplementary slides

37 Net finance charges 2011* m 2012 m Movement m Core interest (196) (199) (3) IAS 39 4 (2) (6) Net interest charge (192) (201) (9) Finance income/(charge) from post employment obligations 3 (5) (8) Other finance charges (17) (6) 11 Net other finance charge (14) (11) 3 Net finance charges (206) (212) (6) Six months ended 31 December. *Restated to reflect reclassification from IAS39 to core interest. 37

38 Exceptional items 2011 m 2012 m Business restructuring (24) (4) Other operating exceptionals - 20 Operating exceptional items (24) 16 Sale of businesses Exceptional tax items (518) (2) Post tax exceptional items (440) 14 Cash impact of exceptional items (74) (34) Six months ended 31 December. 38

39 Outlook statements For the year ending 30 June 2013 Exceptional operating items: Exceptional operating items are expected to be approximately a cost of 20 million for the year ending 30 June 2013, being a 40 million cost associated with the restructuring of our supply operations in Ireland, Scotland and North America and a 20 million gain regarding the Irish pension scheme benefit. Cash payments related to restructuring programs are expected to be approximately 70 million for the year ending 30 June Cost of goods COGS per case is expected to increase at around 2% for the year ending 30 June Marketing investment Marketing spend in H2 will grow at least in line with net sales growth. Overheads Incremental overhead savings from the organisation review will be lower in H2 than in H1. Net finance charges The effective interest rate for the year ending 30 June 2013 is likely to be at 4.9%. Other net finance charges are expected to be at 45 million. Exchange rate movements Exchange rate movements for the year ending 30 June 2013 are expected to have 20 million adverse impact on operating profit and no material impact on net finance charges. This guidance excludes the impact of IAS 21 and 39. Pensions A cash contribution of 400 million will be made to the group s principal UK pension scheme in the year ending 30 June 2013, which will reduce the current deficit, and will have a slight eps benefit. Capex Capex spend is expected to be above 600 million for the year ending 30 June Free cash flow For the year ending 30 June 2013, free cash flow Is expected to be 400 million lower than in the year ended 30 June Medium term guidance (issued August 2011) Organic operating profit growth Our medium term outlook is for average top line growth of 6% and cumulative operating margin improvement of 200 basis points achieved in the 3 years ending 30 June eps Our medium term outlook is for double-digit growth in core* eps. Taxation We currently anticipate that 18% will be our ongoing tax rate. The information on this slide is inherently forward-looking. Please see slide Cautionary statement concerning forward-looking statements. *Excluding foreign exchange and exceptional items. 39

40 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 2012 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. 40