diageo plc 2013 preliminary results - final investor slides

8/11/2019 Diageo Plc 2013 Preliminary Results - Final Investor Slides

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Ivan MenezesChief Executive


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Making a strong business stronger

3

Performance ambition

Sustained top line growth

Expand operating margin

Enhanced financial strength

Double digit eps growth

Improve returns to shareholders

F13 delivery

5%organic net sales growth

0.8 ppt organic operating margin

improvement

1.5 billion free cash flow

eps pre-exceptional items up 11%

Recommended 9%increase in

final dividend

Year ended 30 June 2013.


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My key highlights:

4

0.5 billion additional net sales*

An incremental 1 million cases of Johnnie Walker,

now over 20 million cases

Innovation was up nearly 30%this year contributing

over 50% of our growth

We fully integrated Mey ki, Ypica, Shuijingfang

and Meta Abo

Year ended 30 June 2013. *Organic growth.


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Deirdre MahlanCFO


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Delivering efficient growth

Focus on strategic brands

Leading position in US spirits, driving top line

growth and margin expansion

Scale in emerging markets is now also driving top

line growth and margin expansion

Our geographic breadth mitigates the impact of

individual market challenges

6


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Delivering efficient growth from our strategicbrands

7

Other

Strategic

brands

Volume growthEU k

165

352

Net sales growthm

163

(21)

(58)

102

108

58

Net sales growth fromstrategic brands m

Asia Pacific developed

Western Europe

North America

AEET

LAC

Asia Pacific emerging

2,167

(590)

Year ended 30 June 2013. Organic growth.


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Delivering efficient growth in North America

8

4% volume growth from strategic spirits brands

5 ppts of price/mix from strategic spirits brands

Marketing up 10%

Gross margin up 150 bpts

Operating margin up 120 bpts



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Scale in the emerging markets drives top linegrowth and margin expansion

9Year ended 30 June 2013. Organic growth.

198

182

70

170

297

326

15

Emergingmarkets

LAC Asia Pacificemerging

AEET

AEET

LAC

Asia Pacific

emerging

Operating margin expansion bptsNet sales growth m


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Diageos strength is in its geographic breadth

10

5

(6)

11

18

6 56

(2)

9

12

0

55

(4)

10

15

3

5

North America Western Europe AEET LAC Asia Pacific Diageo

Net sales % growth

H2H1 FY



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Price increases and production and overheadefficiencies drove operating margin improvement

11

F12 Reportedoperating margin

FX Acquisitions/Disposals

Organicmovement

F13 Reportedoperating margin

29.7% 0.2 ppts0.2 ppts

0.8 ppts 30.9%

Year ended 30 June.


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Exceptional items reflect decisions made tostrengthen the business

12

2012

m

2013

m

Business restructuring (96) (69)

Other operating exceptionals 56 (30)

Operating exceptional items pre-tax (40) (99)

Sale of businesses 147 (83)

Exceptional tax items (505) 55

Discontinued operations net of tax (11) -

Net exceptional items post tax (409) (127)

Cash impact of business restructuring (158) (61)

Year ended 30 June.


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Another year of strong free cash flow

13Year ended 30 June. m. *Operating profit is adjusted with non-cash items and excludes pension related payments.

2012 Operatingprofit*

Workingcapital

movement

Dividendsincome

Net interestand tax

Net capex Contributionto UK

pensionschemes

Otheroperatingactivities

2013

1,647

416

(24)

37

(71)

(159)

(400)

14 1,460


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Debt remains at 2.4 x EBIT*

14

Net borrowingsat 30 June 2012

Acquisitions Dividends Free cash flow Other Net borrowingsat 30 June 2013

7,570

844

1,125

(1,460)

324 8,403

*Pre-exceptional items. m.


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Interest costs broadly flat despite increasedborrowings

15

2012

m

2013

m

Movement

m

Core interest (386) (403) (17)

IAS 39 4 4 -

Net interest charge (382) (399) (17)

Finance income/(charge) from post

employment obligations 7 (5) (12)

Other finance charges (22) (20) 2

Net other finance charge (15) (25) (10)

Net finance charges (397) (424) (27)

Year ended 30 June.


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Improved performance throughout theincome statement

16

2012

m

2013

m

Movement

mOperating profit* 3,198 3,530 332

Associate income net of tax 213 199 (14)

Trading profit* 3,411 3,729 318

Net finance charges (397) (424) (27)

PBET 3,014 3,305 291

Taxation* (533) (584) (51)

Non-controlling interests (130) (109) 21

Profit after tax* 2,351 2,612 261

eps* 94.2 pence 104.4 pence 10.2 pence

Year ended 30 June. *Excludes exceptional items.


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Delivering efficient growth

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eps growth

Aim: Double digit growth in core* eps

Organic operatingmargin improvement

Aim: The first 200bps by year ending

2014

Faster organic net sales growth

Aim: 6% CAGR in the medium term

Maximising

cash and

returns

Strongplatform

+

Expansion

in faster

growing

markets

+

Sharper

focus

*Excluding foreign exchange and exceptional items.


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Making a strong business even stronger

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Enhancing our position asthe #1 spirits company

in North America

Increasing our presencein the emerging markets

of the world

Leading

brands acrosscategories andglobal reach

Respectedfor our

actions and performance Capturing efficient growth


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Industry leading brands across categories

19

Scotch whisky Other whisk(e)y Vodka Rum TequilaLiqueur Gin Local spirits Beer

Ultra premium

Super premium

Premium

Standard

Value


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The category breadth to deliver on consumertrends in all markets

20Year ended 30 June 2013.

Net sales

Scotch

Vodka

Beer

Whiskey

Rum

RTDs

Liqueurs

Wine

0

25

50

75

100

Developed markets

Tequila, gin, flavoured and local spirits not included

%

Scotch

Beer

Vodka

0

25

50

75

100

Emerging markets

Liqueurs, rum, wine, gin, whiskey, tequila and flavoured

spirits not included Vodka includes Smirnoff ready to drink

%

Local spirits


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Marketing spend is focused on the biggestgrowth opportunity by market

21

Western Europe North America Asia Pacific Africa, EasternEurope & Turkey

Latin America &Caribbean

m

Johnnie Walker super and ultra deluxeJohnnie Walker Red Label


F13 Increased spend


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Enhancing our position as the #1 spiritscompany in North America

22

Building our brands through world

class marketing

Leading the industry in innovation

Building stronger routes to

consumersLeading

brands acrosscategories and

global reach


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Increasing our presence in the emergingmarkets of the world

23

Through strong organic growth

Through driving value from the

acquisitions we have made

Building stronger routes to

consumersLeading

brands acrosscategories and

global reach


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Increasing our presence in the new highgrowth markets through acquisitions

24

Mey kiTurkey Meta AboEthiopia Shui Jing FangChina Hanoi VodkaVietnam YpicaBrazil United SpiritsIndia

August 2011 January 2012 June 2012 June 2012 August 2012 July 2013


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Building stronger routes to consumers inemerging markets

25

For example in Africa:

Diageos biggest emerging market

The biggest emerging middle class opportunity

Driving growth in beer and spirits


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Capturing efficient growth

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Managing challenges in

Western Europe

Premiumising especially in scotch

Drive out cost to invest in growth

Leading

brands acrosscategories andglobal reach


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Western Europe is a large and profitablebusiness and we can improve performance

27

F13 Organic performance

Great Britain France Ireland Iberia, Greece& Italy

Germany Western Europe

Operating profit movementNet sales movement


m


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Driving out cost to invest in growth

28

Deliver restructuring savings

Deliver marketing efficiency

Consistent focus on driving out cost

creates agility


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Building the global leader in super andultra premium

29Year ended 30 June 2013.

North

America

0

50

100

Leading markets

%

JohnnieWalker

Croc

0

50

100

Leading brands

%

Other

Emerging

Asia Pacific

Western Europe

Latin America and Caribbean

Other

The Singleton of Glen OrdBuchanans

Don Julio

Ketel One

Net sales


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Respected for our actions and performance

30

Alcohol in society

Environment Socio-economic development

Leadingbrands acrosscategories and

global reach


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Target by 2015

2013

Performance %

Cumulative

performance

(2007-2013) % Achievement

Progress against operational targets

Reduce carbon emissions by 50% 4.1 26.3

Improve water efficiency by 30% 1.5 19.5

Reduce water wasted at water-stressed sitesby 50% 7.0 21.0

Reduce polluting power of wastewater by 60% (9.1) (17.5)

Eliminate waste to landfill 53.4 77.9

Progress against packaging targets

Reduce average packaging weight by 10% 1.2 5.3

Increase average recycled content across allpackaging to 42% 2.0 37.0

Make all packaging 100% recyclable/reusable 0.2 98.5

Year ended 30 June 2013. 31

Off track

On track

On track

On track

On track

On track

On track

On track

Setting targets for our environmental impactwhich will make a difference

f f


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Respected for our actions and performance

Leadingbrands acrosscategories and

global reach


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Diageo, the worlds leadingpremium drinks company

Outlook statements


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The information on this slide is inherently forward-looking. Please see slide Cautionary statement concerning forward-looking statements.

*Excluding foreign exchange and exceptional items.

For the year ending 30 June 2014

Exceptional operating items:Exceptional operating items are expected to be approximately 85 million for the year ending 30 June 2014 in respect of supplyrestructuring projects. Cash payments related to restructuring programs are expected to be approximately 110 million for the yearending 30 June 2014.

Net finance chargesThe effective interest rate for the year ending 30 June 2014 is likely to be at 4.0%.

Exchange rate movementsExchange rate movements for the year ending 30 June 2014 are expected to have a 55 million adverse impact on operating profit andincrease net finance charges by 5 million. This guidance excludes the impact of IAS 21 and 39.

Capex

Capex spend is expected to be approximately 750 million for the year ending 30 June 2014.

TaxationThe effective tax rate was 18% in the year ended 2013 and is currently expected to be the same for the year ending 30 June 2014.

Restatement for IAS 19RIn the year ending 30 June 2014, Diageo will restate for the new accounting standard on pension accounting and expects to issue thisrestatement in October with the quarter one IMS. The application of the revision to IAS 19 will increase net finance charges for the yearended 30 June 2013 by about 30 million. It is estimated that the IAS 19 charge for the year ending June 2014 will be approximately 10million. In addition, operating profit will reduce by about 10 million in respect of pension service charges which used to be charged to

finance charges.

Medium term guidance (issued August 2011)Organic operating profit growthDiageos medium term outlook is for cumulative average organic top line growth of 6%, cumulative operating margin improvementof200 basis points to be achieved in the 3 years ending 30 June 2014 and double-digit growth in core* eps.

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Outlook statements


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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. Inparticular, forward-looking statements include all statements that express forecasts, expectations, plans, outlook and projections with respect to future matters, including trends in resultsof operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability or co st 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 inrelation to pension schemes, general economic conditions and all statements on the slide outlook statements. By their nature, forward-looking statements involve risk and uncertaintybecause 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 differmaterially 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 Diageos 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 Diageos 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 regulationsand 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 ofinternal 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 Diageos brand image and corporate reputation, and exposure to adverse publicity, whether or not justified, and any resulting impacts on Diageos reputation andthe likelihood that consumers choose products offered by Diageos competitors;

increased competitive product and pricing pressures and unanticipated actions by competitors that could impact Diageos market share, increase expenses and hinder growth

potential; the effects of Diageos strategic focus on premium drinks, the effects of business combinations, partnerships, acquisitions or disposals, existing or future, and the ability to realiseexpected synergies and/or costs savings;

Diageos 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 Diageos brands; increased costs or shortages of talent; disruption to production facilities or business service centres, and systems change programmes, existing or future, and the a bility to derive expected benefits f rom 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 Diageos access to or increase the cost of financing or which may affect Diageos financial results and movements to the value of Diageos 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 Diageos 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 andthe Risk factors contained in Diageos results announcement dated 31 July 2013. 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 circumstanceson 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 rightsreserved. Diageo plc 2013.

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 investmentactivities.

This presentation includes information about Diageos target debt rating. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision orwithdrawal 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 companys website (www.diageo.com) should not be considered to form a part of or be incorporated into this presentation

diageo plc 2013 preliminary results - final investor slides

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