Diageo : 2020 Preliminary Results presentation with script

DIAGEO PRELIMINARY RESULTS YEAR ENDED 30 JUNE 2020

4th August 2020

1

DELIVERING OUR STRATEGY

Reflecting our ambition to be one of the best performing, most trusted and respected consumer products companies in the world

Delivering through our six priorities with clear goals defined by our performance ambition

Four measures of our progress
Efficient	Value	Credibility	Engaged
growth	creation	and trust	people

2

• Good morning everyone.
• When we reported our interim results in January, we had delivered a good, consistent performance in the first half of the year.
• Since then, the outbreak of the Covid-19 pandemic has created an exceptionally challenging operating environment, and has significantly impacted our performance in the second half.
• During this period, our business has shown considerable resilience and I am proud of our response.
• As you will see throughout this presentation, we acted quickly to support our communities and our customers. We stayed connected to our consumers and we responded to their changing needs.
• We took decisive action to protect our business. We reduced expenditure, conserved cash and raised additional liquidity.
• Our technology has given us the insights to continue investing effectively behind our brands and we are determined to emerge stronger.
• I will give a brief overview of these actions shortly. Kathy will then review our financial performance before I give an update on our strategic priorities.
• However, I want to start by thanking our people.
• They have adapted quickly to this new environment, with energy and creativity. They have shown an unwavering commitment to supporting our consumers, trade partners and communities.
• In our recent employee survey in May, 88% of employees surveyed felt that Diageo had supported them through the crisis and 90% felt we had adapted quickly to changing ways of working and doing business.
• These results show an agile and adaptable organisation, which will be key to our success as we emerge from this crisis.

2

SUPPORTING OUR COMMUNITIES

• Donated alcohol to make over 10 million bottles of hand sanitiser in 20 countries

• Supported local charity and relief efforts with donations - drinking water, food parcels, masks and hygiene products

• Launched 'Raising the Bar' - our $100 million global programme to support the on-trade recovery

• We are proud of the actions we have taken to support our communities.
• At the outset of the pandemic, we donated alcohol to make more than ten million bottles of hand sanitiser for frontline healthcare workers in 20 countries.
• Across our regions, we have supported local charity and relief efforts with donations, drinking water, food parcels, masks and hygiene products.
• Most recently, we launched our global recovery fund, 'Raising the Bar'. We are providing $100 million to help pubs and bars recover from Covid-19 in major global hospitality centres. This will support jobs and communities around the world.
• The first support is being provided across the UK and Ireland, and around 20,000 pubs and bars have registered.

3

SUPPORTING OUR CUSTOMERS

• Took back c.500,000 kegs of Guinness from customers

• Provided financial support packages and assistance to bartenders and bar owners

• Raised money for the hospitality industry through benefit concerts and other fund- raising programmes

• Helped the bar professional community stay informed, connected and inspired through World Class and Diageo Bar Academy

• We have been supporting our customers around the world.
• Across the UK, US and Ireland, we made the decision to take back around 500,000 kegs of Guinness from our customers. This significant investment reinforced to customers our extraordinary commitment to quality.
• In many markets, we provided financial support packages for bartenders - including wages and food vouchers
  - as well as helplines and training for bar owners affected by closures.
• Our brand teams found creative and entertaining ways to connect with consumers and also raised money for the hospitality industry. These included live music concerts and celebrity events.
• A range of our brands participated in our 'Tips From Home' programme on social media. We are donating $1 to the United States Bartenders' Guild, every time someone shares a cocktail image on social media using the hash tag. We are donating up to a total of $1 million.
• Our World Class and Diageo Bar Academy platforms have never been more valuable in helping the bar professional community stay connected and informed.

4

ENGAGING OUR CONSUMERS

• • Used our insights and technology to connect with consumers and maintain brand relevance
  • Pivoted to capture increased opportunities in the at-home occasion
  • Responded to the rise in demand for home delivery - including 'cocktails to go'
  • Leveraged our e-commerce capabilities and accelerated investment
• We are using our consumer insights to understand shifts in consumer motivations and behaviours in this fast-changing environment.
• Our brands have stayed connected with consumers and responded to new occasions - such as wanting to enjoy bar- quality drinks at home. We have entertained and inspired consumers with cocktail recipes, new serves and ways to enjoy our brands with food.
• We rapidly responded to increased demand for home delivery. In the US and LAC we partnered with customers on 'cocktail to go' programmes. In East Africa, we devised new ways of getting our products to consumers homes, partnering with motorbike delivery companies, known as boda-bodas.
• Lockdowns have created shifts in consumer shopping behaviour, including an acceleration in e-commerce in many markets. We have leveraged existing capabilities and accelerated investment.
• Across markets, our business is adapting rapidly to the changes in our operating environment as a result of Covid-19.

5

OUR LEADING PORTFOLIO, EFFICIENT OPERATIONS AND AGILE CULTURE PROVIDE A STRONG FOUNDATION

Broad portfolio with leading brands across categories, geographies and price points

Consumer-led, sustainable innovation executed at scale

Experienced leadership team and high employee engagement

Advantaged route to consumer and marketing effectiveness

Embedded culture of everyday efficiency

Strong financial position and good liquidity

6

• Our strategic actions over the last six years have given us a strong foundation for managing through this period.
• Outstanding brand building, innovation and sales capabilities have been strengthened by smart investment in data analytics and technology.
• As a result of these investments, we are now faster at identifying and responding to changing consumer trends and we are a more efficient, effective and resilient organisation.

6

SUCCESSFUL STRATEGIC EXECUTION HAS DELIVERED CONSISTENT GROWTH PRIOR TO COVID-19

SUSTAINABLE ORGANIC

TOPLINE PERFORMANCE %

			6.1
Mid-		5.0
single
digit	4.3			4.2
4-6%
2.8
F16	F17	F18	F19	F20 H1

EVERYDAY EFFICIENCY, FUELLING INCREASED INVESTMENT AND DRIVING MARGIN IMPROVEMENT

Organic	+198	+13
operating
margin	bps	bps
	F17-19	F20 H1
	(Cumulative)

Marketing +30 +25 investment

rate*bps bps

CONSISTENT & SOLID

FREE CASH FLOW

£bn

	2.7	2.5	2.6
2.1
				1.0
F16	F17	F18	F19	F20 H1

All numbers are organic. * Organic movement

7

• Successful execution of our strategy has delivered consistent growth.
• We have achieved mid-single digit top-line growth over the last three years.
• Every day efficiency has enabled us to expand operating margins and deliver strong cash flow generation.

7

COVID-19 IS SIGNIFICANTLY DISRUPTING OUR BUSINESS ACROSS ALL REGIONS

Organic net sales growth by region in F20(i)

North America

2%

H1 F20: 6%

H2 F20: (1)%

Latin America and Caribbean

(15)%

Africa

H1 F20: 2%(13)%

H2 F20: (40)%

H1 F20: 5%

H2 F20: (33)%

1. The above map is intended to illustrate general geographic regions where Diageo has a presence and/or in which its products are sold. It is not intended to imply that Diageo has a presence in and/or that its products are sold in every country within a geographical region.

Europe and Turkey

(12)%

H1 F20: 3%

H2 F20: (31)%

Asia Pacific

(16)%

H1 F20: 4%

H2 F20: (38)%

8

• You can see from this map, that whilst we delivered organic growth across all regions in the first half of fiscal 20, Covid-19 significantly impacted our performance in the second half.
• This is due to the widespread closure of bars and restaurants around the world and the disruption to global travel. While the on-trade is gradually re-opening in many of our markets, we expect volatility to continue.
• In the US, where around 20% of our net sales are normally in the on-trade, the channel closure had a meaningful impact. However, strong off-trade demand was able to partially offset the lost on-trade net sales. Since May, on- trade premises have been re-opening in certain states, although lockdown measures have since been re-introduced in some states.
• In Europe, around 50% of our net sales were previously on-trade.Covid-related closures had a very significant impact on sales, particularly for our beer business, where consumption is strongly skewed to pubs and bars. The on- trade channel has been re-opening across most markets in recent weeks, although capacity is restricted.
• Africa is a more on-trade oriented market. The total shutdown in South Africa for over two months and disruptions across our other African markets significantly impacted our business. South Africa has recently re-introduced a ban on alcohol sales.
• LAC has also been severely impacted by widespread on-trade closures. While Mexico and Brazil have begun to gradually re-open, restrictions remain in most markets.
• In India, there was a nationwide shutdown of both the on and off trade for six weeks. There has been some re- opening of the off-trade channel but restrictions remain in certain areas. The on-trade channel remains closed.
• In China, the majority of alcohol consumption is within social occasions. The market has gradually re-opened over recent months and the recovery is gathering pace.
• Global travel remains severely impacted.

8

FINANCIAL PERFORMANCE IN F20

WAS SEVERELY IMPACTED

Organic volume	Organic net sales	Organic operating margin
11.2%	8.4%	212 bps
Free cash flow	EPS pre-exceptionals	Full year dividend
£1.6bn	16.4%	2% to 69.88p

Returned £1.25bn to shareholders through share buyback to end January 2020

9

• The global disruptions I have just outlined, significantly impacted our financial performance in fiscal 20.
• Organic volume decreased by 11% and organic net sales decreased by 8%.
• Organic operating profit declined 14% and organic operating margin declined by 212 basis points.
• Pre-exceptionalearnings per share declined 16%.
• In this context, agile financial management is critical to our success and Kathy will provide more detail on the actions we have taken.
• In the seven months to January, we returned £1.25 billion to shareholders through our return of capital programme in the form of share buybacks.
• Today we have announced a recommended final dividend for fiscal 20, which brings the full year dividend growth to 2%.

9

FOCUSED ON MANAGING THROUGH

THE CRISIS TO EMERGE STRONGER

• We believe successful strategic execution and continued agility will enable us to manage through the crisis, and we are determined to emerge stronger.
• We are moving with increased speed to win in our markets
• In this fast-changing environment, we are continuously re-focusing our investment in marketing and innovation to capture opportunities and strengthen brand equity.
• Above all, we will continue to do business in the right way from grain to glass. This is fundamental to our performance ambition and has never been more important.
• Let me now hand over to Kathy.

10

SIGNIFICANT IMPACT FROM

COVID-19 ON F20 RESULTS

Efficient growth			Value creation
Organic net			Organic operating		ROIC
sales growth			margin expansion		12.4%
(8.4)%				(212)bps
					267 bps
Free cash flow			Pre-exceptional eps		Total Shareholder Return
£1,634m			109.4p		19%
			16.4%
					11

• Thank you, Ivan and good morning, everyone.
• This year, our business has been significantly impacted by Covid-19. We delivered consistent, sustainable mid-single digit growth prior to the pandemic. And we have taken quick and agile actions to manage through the ongoing disruption.
• I will expand on the actions in a moment but let me start with a recap of some of the key measures for the year that Ivan has already talked you through.
• We had a good start to F20 delivering first half organic net sales up 4.2% making this the 8th consecutive half year of consistent mid-single digit growth. Covid-19 has significantly impacted our second half and therefore our full year growth, with organic net sales down 8.4%, driven by 11.2% organic volume decline partially offset by 2.8% positive price/mix.
• Organic operating margin was also impacted, decreasing 212bps over the full year after delivering 13bps of growth in the first half.
• By focusing on cash conservation we delivered a solid free cash flow performance at £1.6bn despite the negative impact of Covid-19 in the second half. And we took decisive quick action to strengthen Diageo's already robust liquidity position.
• Pre-exceptionalearnings per share declined 16.4% to 109.4p mainly driven by a decline in organic operating profit, with basic eps down to 60.1p due to exceptional items driven by the £1.3bn non-cash impairment charge across India, Korea and Africa.
• Return on invested capital at 12.4% was down 267bps as a result of reduced earnings.
• TSR was down 19% over the past 12 months driven by the lower year on year share price. Over the longer term however both the 5-year and 10-year TSR compound average growth was up double digit, placing us 6th, for both periods among the other 16 CPG companies in our peer group.

11

AN AGILE RESPONSE TO SIGNIFICANT

DISRUPTION

Protecting our people

Supporting communities

WE

FOCUSED

ON

Supporting customers and consumers

Protecting our business

12

• As the extent of Covid-19's impact began to unfold in the second half, we quickly changed the way we run our business.
• In China we instituted a full crisis management approach in January and supported the team in taking agile steps to manage through the volatile environment.
• As Covid-19 spread we were quick to ensure that learnings from China were shared with other markets globally to help anticipate the impacts on other areas of our business.
• From the start we have been clear and consistent on our approach. We set out to protect our people, our communities and the business with a clear outcome in mind - to emerge stronger with the recovery.
• To protect our people, we moved to business critical only international travel at the end of February and then quickly moved to working from home where possible and implemented stringent safety protocols for essential employees needed on site. We supported our people in coping with the impacts of the pandemic through easier access to sick time and time off to take care for family as well as providing new life insurance and bereavement benefits.
• Ivan just set out how we supported our communities as well as our customers and consumers.
• To protect our business, we quickly reset our discretionary spend including A&P that we believed would not be effective in the rapidly changing circumstances. We have been clear throughout that we must remain invested to sustain the health of our brands and business, while taking robust decisions to reduce costs and conserve cash over the short term where that made sense. In addition, to ensure we have more than adequate financial resources to support the business, we further strengthened our liquidity including issuing £2bn of corporate bonds in April 2020 and adding £2.5bn to our committed standby credit facility.
• We are confident the robust steps we have taken will support our goal to emerge stronger.
• And I'll now come back to fiscal 20 results which really has been a year of two distinctly different halves.

12

AFTER A SOLID FIRST HALF ORGANIC NET

SALES DECLINED 8.4% FOR THE FULL YEAR

Organic volume growth		Price/mix		Organic net sales growth

				3.8%	4.0%		5.0%	6.1%	4.2%
2.5%	2.3%	0.2%	2.5%	1.3%	2.8%
		(11.2)%							(8.4)%
		(24.3)%							(23.0)%
		F18	F19	F20H1		F20H2	F20
									13

• Organic net sales for fiscal 20 declined 8.4% versus last year, primarily driven by volume which was down 11.2% due to widespread on-trade closures and other restrictions implemented in response to the Covid-19 pandemic.
• The strong, positive price mix of 2.8% was driven by market mix, with resilient performance in North America, our most profitable region, and volume declines across all other regions.
• We began to see the impact of the virus on the business in the third quarter of fiscal 20, mainly in Asia and Global Travel, which led to total group organic net sales declining low to mid-single digits. With lockdowns occurring in many places in the fourth quarter the impact to our top line accelerated with group organic net sales down nearly 40%. Overall for the second half organic net sales were down 23% year-over-year, a sharp contrast to the 4.2% growth we generated in the first half of F20.
• As a result of the scaled back trade activity in the last quarter absolute stock in trade is down in all regions. However in many markets outside the US, including in particular Global Travel Retail, stock in trade days are up due to the reduced near-term demand associated with the significant uncertainty caused by the pandemic.
• Over the past month we saw relaxation of lockdown measures in many markets and we are seeing a gradual improvement in on-trade volumes.
• However, as I look ahead, there continues to be significant uncertainty over the pace and the shape of the recovery driven by both the uncertainty regarding how the Covid-19 virus might progress and how economies will recover. We have already seen South Africa shut down alcohol sales for the second time and in the US, bars and restaurants in some of the largest states have had to either close or adhere to additional restrictions as infection rates have risen.
• With this in mind, we are not providing specific revenue and profit guidance for the fiscal year. Broadly we expect organic net revenue in the first half to be significantly impacted with sequential improvement in the first and second quarter as the on-trade further reopens, and consumer demand begins to recover.

13

ORGANIC DECLINE IN MOST CATEGORIES AFTER

BROAD BASED GROWTH IN THE FIRST HALF

Organic net sales movement

																													31%
			F20H1		F20FY																			25%
										11%8%	6% 3%					7%		3%		7%
0%										2%											2%
(1)%
												(4)%								(4)%
															(7)%
							(8)%
																					(14)%
																												(15)%
		(17)%
	Scotch Vodka*	Canadian		US	Rum Liqueurs		IMFL		Gin	Tequila Beer
										Whisky		Whiskey									Whisky
* Vodka includes Ketel One Botanical																				14

• Net sales declined across key categories, apart from Tequila, Canadian Whisky and US Whiskey, after broad based growth in the first half.
• Declines across categories reflect the overall contraction of the TBA industry amidst lockdown restrictions.
• Scotch net sales were down 17%. In the first half scotch was flat due to specific market challenges impacting Johnnie Walker in particular. Our scotch portfolio participates strongly in the on-trade and travel retail and so performance was disproportionately impacted in these channels by Covid-19. The impact was particularly significant in emerging markets which together with travel retail contributes over 2/3 of our scotch sales.
• Vodka was down 8% driven by declines in Smirnoff, Cîroc and Ketel One. Smirnoff declined in all regions except for LAC where in Mexico our Smirnoff Spicy Tamarind innovation made us the number one player in the vodka category. This was offset by declines in Europe due to high on-trade reliance and South Africa shutting down alcohol sales for 9 weeks. Cîroc and Ketel One declines were mainly driven by the US.
• Canadian Whisky net sales were up 8% driven by Crown Royal with continued double-digit growth from Crown Royal Regal Apple and Crown Royal Vanilla which are in their sixth and fourth year, respectively, since launch. Crown Royal also benefitted from the strong performance of the limited time offer, Crown Royal Peach.
• In US Whiskey, growth was driven by Bulleit with net sales up 4% in US Spirits which was supported by a quick shift to effective marketing campaigns across TV and social media, targeting the at-home occasion.
• Rum was down 7%, with Captain Morgan up mid-single-digit across Europe offset by a decline in the US as well as declines of McDowell's No 1 Rum in India and Zacapa in Europe.
• In liqueurs, net sales decreased 4% as double-digit growth in Australia and the success of Baileys Red Velvet in the US was more than offset by declines in Europe which was lapping a strong year of innovation in fiscal 19 and was also impacted by the lockdown restrictions. Global Travel sales also significantly declined.
• Net sales in IMFL Whisky were down 14% with declines across the portfolio mainly driven by the economic slowdown in India impacting category growth and in the second half by the nationwide lockdown, including the total ban on alcohol sales across the country for 42 days.
• In gin, net sales were down 4% as strong growth in the first half was fully offset by on-trade closures impacting consumption across key markets in Europe in the second half. Brazil's gin performance continues to build momentum with Tanqueray growing double digit throughout the year.
• In Tequila, net sales increased 25% driven by Don Julio and Casamigos in US Spirits with both brands continuing to gain share. In Mexico, Don Julio declined low double digit, following price increases early in the second half, exacerbated by Covid-19 restrictions implemented across the market.
• Beer net sales were down 15% after growing 2% in the first half, driven by high exposure to on-trade sales, cancellation of sporting events and underlying excise and supply related challenges in Africa. As a result, Guinness, Senator Keg and Tusker declined double digit. We also initiated keg returns in support of the on-trade and to ensure product quality, which mainly impacted Guinness sales. Serengeti in Tanzania and Rockshore in Ireland grew for the full year on the back of a strong first half.

14

COVID-19 IMPACTED PERFORMANCE

ACROSS OUR PORTFOLIO

Organic net sales decline*			Global giants
	Global giants Local stars	Reserve
			(22)%	Johnnie Walker
		(4)%	(6)%	Smirnoff
(7)%		(2)%	Captain Morgan
			(3)%	Baileys
			(4)%	Tanqueray
(13)%		(16)%	Guinness

*Spirits brands excluding ready to drink	15

• In the first half all global giant brands were in growth, except for Johnnie Walker, and local stars and Reserve grew 8% and 11%, respectively.
• With declines in the second half, caused primarily by Covid-19 lockdowns, Global giants were down 13% for the full year, largely driven by Johnnie Walker and Guinness. Johnnie Walker had a soft first half impacted by challenging trading conditions in Mexico and Travel Retail in Asia and Middle East as well as market disruptions in Peru and Chile. In the second half these headwinds were compounded by Covid-19 restrictions curbing global travel sales and high tempo occasions where Johnnie Walker Red Label plays. The brand was also lapping the successful prior year Game of Thrones innovation, "White Walker by Johnnie Walker". After a solid first half Guinness was down 16% driven by Covid-19 led declines in the larger Guinness markets of Europe and Africa, where on-trade accounts for about three quarters of sales in aggregate.
• Net sales of local stars decreased 7% for the full year as strong growth in Crown Royal in the US and Buchanan's in Colombia and Brazil was offset by declines in Buchanan's in other markets as well as a decline in Chinese white spirits, IMFL spirits and JεB in Europe.
• In Reserve, net sales were down 4% as growth of super premium Tequila was offset by declines in Chinese white spirits, Johnnie Walker super premium brands, Reserve Vodka and Zacapa.
• Despite the challenging conditions we are committed to continue to invest behind our brands to ensure strong brand equity which is a pre-requisite for gaining quality market share in the long-term.

15

REPORTED OPERATING PROFIT BEFORE

EXCEPTIONAL ITEMS DOWN 15.1%

ORGANIC OPERATING PROFIT DOWN 14.4%

£m				F20		F19
PRIOR PERIOD OPERATING PROFIT *		4,116		3,819
Exchange				(1)	25
Fair value remeasurement			2	-
Acquisitions & Disposals			(34)	(64)
Organic growth				(589)	336
CURRENT PERIOD OPERATING PROFIT *		3,494		4,116
Reported operating	Exchange	Acquisitions	Other	Organic	Reported operating
margin** F19	and disposals	growth		margin** F20
32.0%	(9)bps	(8)bps	3 bps	(212)bps	29.7%
* Reported operating profit before exceptional items			16
** Reported operating margin before exceptional items

• Reported operating profit before exceptional items declined 15.1% driven mainly by the decline in organic profit.
• Organic operating profit, which excludes exchange and acquisitions and disposals, decreased 14.4% with organic operating margin down 212bps, after delivering 13bps of margin expansion in the first half.
• Reported operating margin excluding exceptional items decreased 226 bps as exchange and disposals modestly increased margin dilution.

16

ORGANIC OPERATING MARGIN DOWN 212BPS

AFTER 13BPS EXPANSION IN THE FIRST HALF

Movement in organic operating margin

32.3%
	22bps
(174)bps	30.2%
	(60)bps

F19	Gross margin	Marketing	Other operating	F20
			items

17

• Organic operating margin contracted 212bps, driven by pressure on gross margin and one-off costs arising from the disruption in the operating environment only partially offset by overhead efficiencies and lower marketing spend in the fourth quarter.
• Gross margin declined 174bps as productivity led gross margin gains were more than offset by modest but adverse product mix, cost of goods inflation and declining volumes which reduced fixed cost absorption. We experienced upward inflationary pressure in locally traded commodities, particularly base neutral spirits in India and agave as well as glass globally.
• Our marketing spend was down 10%, ahead of our net sales decline, as we significantly reduced discretionary costs and only spent A&P where we believed it would be effective. This resulted in significant reductions in the fourth quarter, during lockdowns, with the A&P rate of investment down over 400bps in the quarter and 22bps for the full year. Despite reductions we continued to invest in strategic brands, quickly responding to channel shifts and the increase in at-home occasions.
• Other operating items contributed 60bps to operating margin dilution. Overhead efficiencies as well as one-off benefits, including lower variable compensation and curtailment of discretionary spending in Q4, contributed 46bps of margin accretion which was more than offset by an increase in other expenses related to increased levels of bad debt and smaller impairments.
• Looking ahead, we expect the business to improve from the peak of the pandemic impact we experienced in the fourth quarter when volume declines drove operating margin down over ten percentage points. While volumes are expected to improve sequentially we expect our first half of F21 to continue to be significantly impacted and margin diluted compared to an unaffected first half of last fiscal. Additionally we will increase marketing investment as demand recovers. Overall we expect some sequential improvement in our operating margin in our first half compared to our second half of F20.

17

CONSISTENT FREE CASH FLOW DELIVERY IN H1 SIGNIFICANTLY IMPACTED BY COVID-19 IN H2

£ million

2,608

(1)

(541)
(106)	(47)	(96)	(56)	(127)	1,634

F19	Exchange	Operating	Working Capex	Tax	Interest	Other	F20
	(i)	profit (ii)	capital (iii)			(iv)

• 1. Exchange on operating profit before exceptional items.
  2. Operating profit excluding exchange, depreciation and amortisation, post employment charges and non cash items. Free cash flow for the year ended 30 June 2020 has benefited by £74m following the adoption of IFRS16 on 1 July 2019.
  3. Working capital includes maturing inventory.
  4. Other items include post employment payments, dividends received from associates and joint ventures, and loans and other 18 investments.
• We delivered solid free cash flow of about £1bn in the first half with second half performance impacted by the decline in operating profit driven by the Covid-19 pandemic.
• We decreased our creditor balance and the rate of investment in our inventory in response to the decline in sales. Debtor balances were also down but not to the same degree as we worked with some of our key customers on revised payment terms. As a result, we saw increased use of working capital year-on-year.
• Cash taxes increased £96m as the one-off tax settlements and change in payment timing we noted in the first half was partially offset by lower tax on reduced earnings in the second half as well as some delay in second half payments associated with Covid-19.
• Interest payments were higher driven by increased debt, albeit borrowed at lower rates, and reduced gains on our swap portfolio.
• Net capex increased £47m versus last year as we invested in brand experience centres in Edinburgh and Dublin as well as working toward reopening two of our historic Scottish distilleries. In the last quarter, we delayed non- essential capex across the business to conserve cash. As I look ahead into fiscal 21, I do not expect to see material opportunities to decrease capex further as we work to complete projects underway to support long-term growth and enhancing brand experiences and increase investment supporting our sustainability agenda.
• The key driver of the "other" category on this chart is the lower dividends from our joint ventures and associates.
• By acting decisively, I believe we have delivered a good cash performance given the difficult market environment, selectively reducing overhead and ineffective A&P, deferring discretionary capex projects and tightly managing our working capital.

18

INCREASED DEBT SUPPORTED

BY FAVOURABLE FUNDING

		F20	F19	Movement
Closing net debt*	£m	(13,246)	(11,277)	(1,969)
Average net debt*	£m	(12,708)	(10,393)	(2,315)
Net interest charge	£m	(333)	(248)	(85)
Net other finance charges	£m	(20)	(15)	(5)
Net finance charges	£m	(353)	(263)	(90)
Effective interest rate	%	2.6	2.4	0.2
Adjusted** net debt* / EBITDA	x	3.3	2.5	0.8

* Net debt is equivalent to net borrowings

** Adjusted to include net debt and post employment plan benefit liabilities

19

• Average net debt increased by £2.3bn driven by the first phase of the share buyback programme, reduced free cash flow and the impact of adopting IFRS 16.
• Net interest charge was up due to higher debt and a slightly higher effective interest rate. Our effective interest rate at 2.6% increased 20bps due to the costs associated with enhancing our liquidity position and reduced gains from our FX swap portfolio which were partially offset by the impact of more favourable funding costs.
• Other finance charges are ahead of last year, driven by discount unwinds of financial liabilities. I expect fiscal 21 charges to be at a similar level.
• Given the more volatile market conditions, we moved quickly to further enhance our liquidity position. We accelerated our bond issuance programme with an additional £2bn issuance in April and temporarily increased our committed facilities from £2.8bn to £5.3bn. While these measures incur incremental cost, they give us more flexibility to manage through this volatile period.
• As I look ahead, I expect our effective interest rate to rise to roughly 3.0% for fiscal 21 due to a further reduction in swap portfolio gains along with the increased costs from our liquidity enhancement measures.
• The leverage ratio has increased to 3.3x, due to reduced EBITDA and the increase in net debt.
• While we remain committed to a leverage range of 2.5x to 3.0x adjusted net debt to EBITDA over the medium term I do anticipate elevated levels above this range through the coming year. I expect these levels to peak when we report fiscal 21 interims, reflecting the trailing 12 months impact of Covid-19 at that time, and then to improve from there driven by the pace of recovery.

19

A CONSISTENT AND DISCIPLINED

APPROACH TO CAPITAL STRUCTURE

			Leverage policy
	Adjusted Net Debt* to EBITDA: 2.5x - 3.0x
Organic			Dividends		M&A and portfolio
		1.8x to 2.2x
growth				management
		dividend cover

Return excess cash to shareholders

* Net debt is equivalent to net borrowings. Adjusted net debt includes net debt and post employment plan benefit liabilities.

20

• Our disciplined approach to capital allocation remains consistent.
• Our strong liquidity position gives us confidence to continue to invest to drive improved efficiency and sustainable growth for the long term.
• Today we have announced a recommended final dividend of 42.47 pence in line with the final dividend in fiscal 19, bringing full year dividend growth to 2% and dividend cover to 1.6x. While there remains significant uncertainty in the short term, we have confidence in the long-term health of our business and the industry in which we operate.
  This decision on the dividend reflects this and our strong liquidity position enables us to fully invest behind effective growth initiatives while supporting returns for our shareholders.
• That said, the long-term sustainability of the business is our number one priority.
• In July 2019, we announced a three-year return of capital programme of up to £4.5 billion, and through January 2020 we returned £1.25bn through share buyback. In April we announced that we were not initiating the second phase of the programme during the remainder of fiscal 20. Given our elevated leverage ratio we have paused the programme until leverage is back within our target range.
• We will keep future returns of capital, including dividends, under review through fiscal 21 to ensure we allocate Diageo's capital in the best way to maximise value for the business and our stakeholders.

20

F20 EXCHANGE IMPACT IS MODEST FOR

BOTH OPERATING PROFIT AND NET SALES

Exchange rates

Total Exchange Impact

Translation rate

	F20*	F21**
$/£	1.26	1.30
€/£	1.14	1.11

Transaction rate

	F20*	F21***
$/£	1.35	1.32
€/£	1.12	1.12

• Average rate ** Current spot rate
  ***Weighted average rates

	£m	F20
	Net Sales	32
	Operating profit	(1)
	Net Interest	(2)

21

• Moving now to foreign exchange, in fiscal 20 we had modest exchange impacts on net sales and operating profit as a result of the strengthening of the US Dollar offset by adverse movement of several currencies including the Brazilian Real, Australian Dollar, Colombian Peso and Turkish Lira.
• As I mentioned, given the continued uncertainty, we are not able to provide specific financial guidance and as such cannot update on the expected impact from foreign exchange on fiscal 21.

21

BASIC EPS DECREASED 54.0%

EPS BEFORE EXCEPTIONAL ITEMS DOWN 16.4%

		Pence per share
F19 eps before exceptional items	130.8
Exchange on operating profit	-
Acquisitions and disposals(i)	(1.2)
Fair value remeasurement	0.1
Organic operating profit growth	(24.4)
Associates and joint ventures	(1.2)
Tax(iii)	3.9
Net finance charges(ii)	(1.2)
Non-controlling interests	1.5
Share buyback(i)	1.1
F20 eps before exceptional items	109.4
(i)	Includes finance charges net of tax
(ii)	Excludes finance charges related to acquisitions, disposals and share buyback.	22
(iii)	Excludes tax related to acquisitions, disposals and share buyback

• Earnings per share before exceptional items declined by 16.4%.
• This decline is largely due to the decrease in organic operating profit and to a smaller extent the decline in associate profit, higher finance charges and impact of acquisitions and disposals. This was partially offset by the positive impact of tax, non-controlling interests and the share buybacks executed in the first phase of the return of capital programme through the end of January.
• Our tax liability decreased, mainly due to decline in taxable profit. Our tax rate before exceptional items was 21.7%, within our guidance range of 21 to 22% for fiscal 20 which we are maintaining for fiscal 21.
• Non-controllinginterests had a positive impact on eps as a result of the lower profit in our listed subsidiaries.
• The share repurchases reduced the weighted average number of shares and had a positive impact on eps.
• The higher decrease in basic eps is caused by a £1.3bn non-cash impairment charge within exceptional items. We have partly written down goodwill and two USL brands in India as a result of economic slowdown and Covid-19 led market disruptions which collectively have a significant impact on our revenue expectations, especially in the near term. Despite current challenges we continue to believe that, with the right level of future investment, the long- term market opportunity will be a significant source of value for Diageo over time. We also impaired fixed assets in Nigeria and Ethiopia and the Windsor brand in Korea as the impacts of Covid-19 significantly amplified underlying challenges in these markets.

22

CONSISTENT PERFORMANCE SIGNIFICANTLY

IMPACTED BY COVID-19 IN THE SECOND HALF

We took quick actions to protect our people and our business

We supported our customers and suppliers

More agile performance management to respond to changes quickly

We strengthened liquidity to support smart investment for the long term

Our confidence in our business strategy is unchanged

23

• As you have seen, our business has been significantly impacted by Covid-19 in the second half.
• We took quick actions to protect our people and our business and to support our key customers and our suppliers. This is setting up our business to emerge stronger as the global economy and our industry recover.
• As we enter fiscal 21, we continue to face significant volatility as the pace and shape of recovery is uncertain. We have adapted our performance rhythm to recalibrate where and how we are investing, redeploying resources to shifting opportunities on a more frequent basis informed by real time data at a local level.
• We have strengthened Diageo's liquidity which enables us to continue to invest smartly for the long term as we manage through the coming months.
• We believe in the long-term positive growth dynamics of the industry and our confidence in Diageo's business strategy remains unchanged. And we are confident in our ability to effectively manage through the current short- term volatility we face.
• And with that, back to you Ivan.

23

A CLEAR STRATEGY DELIVERED

THROUGH OUR SIX PRIORITIES

1

• Embed Everyday Efficiency

• Invest Smartly

• Promote Positive Drinking

• Champion Inclusion and Diversity

• Pioneer Grain to Glass Sustainability

24

• Thank you Kathy
• Across Diageo, we are guided by our performance ambition and we continue to execute against our six strategic priorities.
• I will begin with an update on the performance of our US and Indian businesses, and on our scotch and beer categories.

24

DELIVERING A RESILIENT

PERFORMANCE IN US SPIRITS

Organic volume and net sales growth (%)

			Volume
5.0			Net sales

3.43.3

1.5

2.0	2.2

1.2

			(0.7)
F17	F18	F19	F20

25

• Our US Spirits business has been relatively resilient during the Covid-19 crisis.
• US Spirits net sales grew 2.2% in fiscal 20. Strong growth of 6.1% in the first half of the year, was only partially offset by lower on-trade sales in the second half. This reflects strong demand in the off-trade channel during the Covid-19 lockdown.
• For the full year, US Spirits volumes declined by 0.7% and price/mix improvements drove 2.9% of net sales growth. This was primarily due to strong growth in our tequila and Canadian whisky brands.

25

ENGAGING CONSUMERS WITH CREATIVITY

AND AGILITY ACROSS OUR BRANDS

26

• Our consumer insights, combined with the agility and creativity of our brand teams, enabled us to pivot to the off- trade opportunity in a new and fast-changing environment.
• Crown Royal, Don Julio and Bulleit are great examples of how we responded to consumers' desire for diversion and entertainment, while at the same time providing support for the on-trade.
• Crown Royal continues to connect consumers with its purpose of 'inspiring exceptional generosity.'
• During Covid-19, the brand engaged with consumers' desire to give back by hosting an online 'Generosity Hour'. It included a weekly concert series featuring stars from across the US, and raised money for bartenders and bar owners affected by closures.
• Don Julio created unique virtual experiences that inspired consumers to drink super-premium tequila at home. A live benefit concert entertained consumers around the world while raising money for the hospitality industry.
• Don Julio also delivered a virtual Cinco de Mayo, which helped people celebrate at home with top bartenders and celebrities. The content series raised $250k and generated over 350 million media impressions.
• Bulleit responded to consumers being at home with a new Drinking Buddies campaign across digital and social media, and its first national TV campaign.
• The campaign's content was produced on an iPhone at home - delivering engaging content quickly and in a highly cost-effective way.
• The results were outstanding and Bulleit gained both spirits and category share in the following three month period.

26

GAINING MARKET SHARE IN SEVERAL

CATEGORIES AND BRANDS IN THE US

Nielsen and NABCA combined value growth (%)

64	66

			F19*						42
			F20**
										38
										23			16
11	12								14
						9
		7
					8
				1	2	3	2	5
									(1)					(4)	(7)
	Crown Royal Smirnoff	Johnnie	Captain	Don Julio Ketel One	Baileys	Bulleit	Cîroc	Casamigos
							Walker	Morgan	vodka***

F20 category value share change**

* FYTD: Nielsen to 15 June 2019, NABCA to 31 May 2019, ** FYTD Nielsen to 13 June 2020, NABCA to 31 May 2020, *** includes Ketel One Botanical

27

• You can see from this chart, that we grew category share across many of our key brands in fiscal 20 - Crown Royal, Don Julio, Ketel One, Baileys, Bulleit and Casamigos.
• This reflects a strong first half performance and our effectiveness in driving share in the at-home occasion when bars and restaurants were closed.
• Johnnie Walker lost share of scotch in the second half of the year. We are using activations to increase the relevance of the brand in the at-home occasion, including highball serves. Our strategic focus remains on recruiting new and younger consumers into the category.
• Smirnoff share declined this year. We continue to focus on stabilising the brand, supported by marketing investment and innovation.
• Captain Morgan lost further share in a category that is losing share of spirits. We are continuing to re-invigorate the brand with new serves, innovation and the Major League Soccer partnership.

27

DISRUPTION TO GROWTH

MOMENTUM IN INDIA

India organic net sales						India organic operating margin
growth, %						progression, bps
				12.2	12.4						252
				8.8	8.2
6.9		77
1.9
				Total India
				Prestige and above			(14.0)
							(17.2)						(571)
		F17	F18		F19	F20				F18	F19	F20

• In recent years, successful strategic execution has delivered good progress in India.
• Our focus on re-shaping the portfolio, investing behind our brands, and productivity has delivered strong top-line growth and significant margin expansion.
• A tougher economic environment slowed our growth in the first half of Fiscal 20. This weaker performance has been exacerbated by the outbreak of Covid-19.
• The Indian market was closed for the manufacture, distribution and retail of alcohol during a six-week, nationwide lockdown until 3 May.
• There has been a phased re-opening of the off-trade since then, but the on-trade channel remains closed.
• During the lockdown, several states introduced additional taxes and excise duties that have impacted retail prices.
• However, in this challenging operating environment, our business has rapidly responded.

28

FOCUSING INVESTMENT, SUPPORTING PARTNERS AND

CAPTURING NEW OPPORTUNITIES IN INDIA

Strategic	Business	Supply Chain	Regulatory
Choices	Partnerships	Readiness	Interventions
• End-to-end	• Support to key	• Demand-driven	• Industry-led
portfolio play	customers (off-	supply	advocacy
	trade and on-
• Focused	trade), third party	• Innovative	• Maximise and
investment to	manufacturers	manufacturing	sustain new
drive growth	and suppliers		avenues (e.g.
			home delivery)

29

• We have provided significant financial support to our partners, including key customers, third party manufacturers and suppliers. We have also committed a $10 million package to support the on-trade recovery, as part of our global 'Raising the Bar' programme.
• We rapidly resumed manufacturing as we emerged from lockdown, ensuring we maximised product availability as the market re-opened.
• We believe the breadth of our portfolio is a key competitive advantage. Whilst we have successfully expanded our presence in 'Prestige and Above,' we also remain well positioned with our Popular portfolio to capture any short-termdown-trading.
• We are continuing to invest behind key products, including the re-launch of McDowell's No. 1 and Royal Challenge.
• Following lockdown, several states have allowed home delivery for the first time. The opening up of this new channel offers an exciting opportunity to increase the accessibility of alcohol in India. While still a very nascent channel, our effort as an industry is to help establish this as a long-term model.
• We have a clear strategy in India. Despite the current challenges in the market, we remain optimistic about the long-term market opportunity and are committed to investing and growing our business.

29

SIGNIFICANT IMPACT ON SCOTCH

FROM COVID-19

Organic net sales growth (%)

																			F17			F18
							16.2			11.6				8.9			F19			F20
4.7	5.7	6.0	5.4	6.8	6.3		2.5				4.8	7.1
		1.9								1.2
							(2.2)			(3.4)						(4.5)
							(12.0)								(8.8)				(9.3)
																(13.1)
		(16.9)																		(18.7)
						(21.9)
	Total Scotch		Johnnie Walker		Buchanan's	Scotch Malts	Primary Scotch		Other
	% of Scotch			55%	9%			15%				12%				10%
	net sales

30

• Fiscal 20 has been a challenging year for our scotch portfolio and net sales declined 17%.
• Our first half performance was flat. This was due to specific market challenges impacting Johnnie Walker in particular. It was also the effect of lapping last year's highly successful innovation of "White Walker by Johnnie Walker".
• In the second half, scotch was disproportionately impacted by Covid-19. This reflects the greater exposure to emerging markets and Travel Retail, which together accounted for over two-thirds of our scotch net sales in fiscal 19.
• We quickly adapted our assets to create relevance and increase visibility in the at-home occasion.
• In the US, Johnnie Walker partnered with bartenders online to engage consumers in cocktail making. Diageo India used Black & White scotch to promote virtual drinks occasions and in Taiwan, The Singleton showed consumers how to pair whisky with home-cooked food. We will build on these activities.
• Our e-commerce capabilities enabled us to respond to the acceleration in channel demand.
• We recently launched a dedicated whisky store for our brands on Amazon in the UK and our 'What's Your Whisky' digital consumer tool.
• We are investing to reach more consumers in more markets and showcase our brands through this channel.
• In this environment, we have a lot of work to do to drive a recovery in scotch performance. Our focus is on winning in the off-trade, recovering the lost volume from Travel Retail and partnering with customers as the on-trade reopens.

30

BENEFITTING FROM OUR BROAD PORTFOLIO

PRESTIGE

ULTRA-PREMIUM

SUPER-PREMIUM

PREMIUM

STANDARD

PRIMARY

* Indicative relative pricing

31

• Our strategy to grow our share of international whisky remains clear.
• We are benefitting from the breadth and depth of our portfolio across all price points.
• In select markets in LAC, Africa and APAC, we have been using primary scotch as a recruitment tool for the next generation of scotch drinkers.
• We want to build on our position in that price tier to capture consumers who are downtrading and keep scotch accessible.
• In a challenging economic environment, we are also ensuring our standard scotch brands are well positioned to win share in target markets.

31

BUILDING VIBRANCY IN SCOTCH

WINNING WITH OUR GLOBAL GIANT		PREMIUMISING ASPIRATIONALLY

32

• We want to win with our global giant and to make Johnnie Walker the most desired, enjoyed and talked about whisky in the world.
• Last September we launched a new global communication campaign which redefined what the brand and 'Keep Walking' mean today.
• At the same time, we introduced a new serve strategy, the Johnnie Walker highball collection. We did this in partnership with the world's leading bartenders in key cities globally.
• These long-mixed serves can also be made at home and we adapted our assets during Covid-19.
• In Fiscal 21, we are celebrating Johnnie Walker's 200th anniversary. We are starting with the "Johnnie Walker Icons 200th", a new range of limited-edition pack designs, which will be available in more than 80 countries.
• We are looking forward to the opening of our Johnnie Walker experience in Edinburgh in 2021.
• Our Prestige business continues to strengthen in a large, growing and profitable market. Our targeted approach via new launches, private sales, auctions and luxury partnerships is delivering good results.
• The Prestige market has remained relatively resilient during Covid-19 and there are encouraging signs of a recovery in luxury spending in China and Taiwan. We will continue to build on our Prestige reputation with new launches.

32

SHARP REDUCTION IN BEER SALES

DUE TO ON-TRADE CLOSURES

Total Beer		Guinness
Organic net sales growth %		Organic net sales growth %

	3.8	3.1
2.1
			(15.0)
F17	F18	F19	F20

	4.8
0.4		1.9
			(15.9)
F17	F18	F19	F20

• The decline in our beer business reflects the significant impact from the on-premise closures in Europe, Africa and the US in the second half of the year.
• In our larger Guinness markets of Europe and Africa, the on-trade normally accounts for around three- quarters of our Guinness sales in aggregate.

33

MAINTAINING RELEVANCE AND ENGAGEMENT

WITH CONSUMERS

• Guinness rapidly responded and demonstrated the strength of its voice to resonate with consumers and customers.
• With on-trade closures happening just before St Patrick's Day, we quickly amended our plans to maintain relevance and connect with consumers. Guinness released an optimistic and hopeful message - 'We'll March Again' - and unveiled measures to support pub and bar staff.
• Guinness donated over £3 million to support the bar and restaurant community in the UK, US and Ireland, alongside elderly citizens in Ireland. In Nigeria, Guinness provided care packages to bar owners and staff.
• We made the decision to take back around 500,000 Guinness kegs from our customers in the UK, US and Ireland and we did not extend shelf life. This reinforced to customers our extraordinary commitment to quality. The reduction to Guinness net sales was around 2%.
• As the Covid-19 pandemic developed, we moved with real pace to engage consumers in new ways to enjoy Guinness at home. This agility drove a strong performance in the off-trade channel.
• In Africa, our teams quickly found new ways to get Guinness and our other brands to consumers. We innovated into new takeaway, multi-pack formats, we partnered with online platforms and we worked with distributors to enable home deliveries.
• We are confident that the actions we have taken during these difficult times will enable us to emerge stronger. We have strengthened our connection with consumers and communities and put our beer brands in new places.

34

INVESTING IN INNOVATION

AND CONSUMER EXPERIENCES

ROLLING OUT SUCCESSFUL INNOVATION		RECRUITING THROUGH CONSUMER EXPERIENCES

• Our beer innovation pipeline has been extremely successful in recent years, and we are benefiting from several launches in the last 18 months
• We continue extending our Guinness portfolio across Africa. The recent launch of Guinness Smooth is successfully recruiting new consumers into the brand with a lower price, lower ABV and more accessible liquid profile.
• In Europe, we followed the success of Rockshore Irish Lager with the launch of Rockshore Light in Ireland, and Rockshore cider.
• Creating immersive brand experiences that showcase our brewing credentials is key to our Guinness strategy.
• Our brand homes are community and cultural hubs that enable us to engage directly with consumers. In Baltimore we baked fresh Guinness bread daily during the lockdown and donated it to the local food bank.
• We have now re-opened these brand homes in Baltimore, Dublin and Shanghai, offering safe places for consumers to enjoy our brands.

35

A CLEAR STRATEGY DELIVERED

THROUGH OUR SIX PRIORITIES

• Sustain Quality Growth

• Embed Everyday Efficiency

3

• Promote Positive Drinking

• Champion Inclusion and Diversity

• Pioneer Grain to Glass Sustainability

36

• Consistent sustainable growth depends on our ability to continue investing smartly in our business.

36

LEVERAGING BEST-IN-CLASS TECHNOLOGY

TOOLS AND DATA ANALYTICS

SUPERIOR CONSUMER INSIGHTS			EVERY DAY GREAT EXECUTION
& MARKETING EFFECTIVENESS

FORESIGHT SYSTEM

• Being close to consumers and customers is at the heart of everything we do.
• Both consumers and occasions are changing and our technology tools are the key to our successful response.
• We are leveraging our well-established, proprietary tools and investing in new ones.
• Most recently, we added Radar, a tool to project scenarios for future market demand. By using Radar in conjunction with Catalyst, we can maximise value from our resource allocation and invest effectively behind our brands as consumer demand recovers.
• Our Every Day Great Execution programme has revolutionised our ability to offer the right brands, in the right outlets, in the right way.
• This year, we introduced EDGE 365. It integrates everything our sales teams need to manage their customer relationships into a single mobile application. As we roll this out, it is delivering significant improvements in efficiency and effectiveness.
• During Covid-19, our sales team were able to switch seamlessly from physical to virtual sales calls and sustain the same level of customer support.
• Another great example is 'My Diageo', which is a website we use in Europe to engage with our on-trade customers and help them grow their businesses.
• During Covid-19 we pivoted the content to provide resources and tools for managing through the crisis and the recovery.
• The number of 'My Diageo' users has more than quadrupled in the last year.

37

RAPIDLY RESPONDING TO CONSUMER

INSIGHTS IN REAL TIME

INCREASE IN BAKING AND TREATS		INCREASE IN COCKTAIL MAKING

• I will share a couple of examples of how our insights are driving our response.
• When lockdowns drove an increase in baking, we quickly switched on existing Baileys assets.
• We participated in these social conversations and helped people create indulgent adult treats.
• When the Dalgona coffee, originally from Korea, took the internet by storm - the Baileys team quickly created their own version.
• The results were extremely positive. In the three months through June, global engagement with Baileys content increased by an average of 26% compared to pre-Covid-19 levels.
• As consumers shifted to at-homecocktail-making our brands responded.
• Johnnie Walker launched 'Kitchen Sink Drinks' - a platform that invited people to submit ingredients they had at home to our bartenders, who showed them how to mix them into delicious scotch cocktails.
• The programme generated 58 million social media impressions.

38

ACCELERATING OUR INVESTMENT IN E-COMMERCE

• Before Covid-19, online shopping for spirits was fast growing but penetration was low compared to other retail categories, largely due to regulatory constraints.
• Changes in shopping behaviour, increased awareness and regulatory relaxation in response to Covid-19 have rapidly accelerated the growth in this channel.
• E-commerceoffers an exciting opportunity for growth.
• We are leveraging our established capabilities, while increasing our investment and redeploying resources to meet increased demand.
• We are ensuring our brands show up brilliantly online and investing in marketing to drive increased awareness and visibility.
• Across our regions, we are partnering to "win with the winners" - including grocery retailers, e- marketplaces and delivery apps and distributors.
• We are working with existing partners and rapidly adding new ones.
• We are also leveraging our own digital channels such as Malts.com in the UK and TheBar.com in Brazil. Consumers are increasing their use of digital channels to discover and learn about our brands and products.
• In some markets, such as the US and India, regulations have recently been eased as a result of Covid-19, creating new opportunities.
• We are working hard to persuade regulators to maintain the eased commercial environment.
• In some previously under-penetratede-commerce markets, including Central America and Africa, there has also been a significant increase in demand.
• While the pace of growth in e-commerce is likely to slow as the on-trade channel recovers, we expect online demand for our products to continue to increase.
• Our readiness and agility to respond are critical to our success in that channel.

39

INVESTING IN THE ON-TRADE RECOVERY

TO EMERGE STRONGER

	DIAGEO BAR ACADEMY		COCKTAILS TO GO		WELCOME BACK

• Supporting our on-trade customers through the crisis and into the recovery is key to our ability to emerge stronger. This slide shows just a few examples of how we're doing this.
• Diageo Bar Academy has brought the bar professional community together from across our markets.
• We transformed our content to provide advice for managing through the crisis and successfully re-opening.
• In the three months through June, we trained 77,000 people virtually, across 38 countries.
• We now have more than 1 million active users on our website - more than double the number before Covid-19.
• In some markets, our teams partnered with customers to develop 'Cocktails To Go' programmes.
• The US was the first market to launch this, less than two weeks post-shutdown, and we have launched in a number of LAC markets.
• Across Diageo, our teams are responding with creativity to support re-openings.
• Diageo Australia launched a nationwide 'Welcome Back' support package, available to 1,000 on-trade partners. They also partnered with an online booking platform to drive awareness for bar re-openings.
• In Ireland, we partnered with a digital platform that enables Guinness trade customers to access online tools, such as digital table bookings, free of charge for six months.
• In the US, our 'Back to My Bar' programme is providing customers with brand activations, tools and training to support them as they re-open.

40

A CLEAR STRATEGY DELIVERED THROUGH OUR SIX PRIORITIES

• Sustain Quality Growth

• Embed Everyday Efficiency

• Invest Smartly

4

5

6

Champion Inclusion and Diversity Pioneer Grain to Glass Sustainability

41

• We want to change the way the world drinks for the better by promoting moderation and tackling the harmful use of alcohol.
• This is not only the right thing to do, it is an essential part of our performance ambition.

41

PROMOTING POSITIVE DRINKING

INTERACTIVE DRINK IQ QUIZ

SMASHED AND UNITAR(i) TRAINING ONLINE

(i) United Nations Institute for

42

• One of our most important tools in promoting moderation and addressing heavy drinking is DRINKiQ.com.
• It is our dedicated responsible drinking website, to provide consumers and stakeholders with information on alcohol and to encourage moderate consumption.
• In November, we launched an interactive DRINKiQ quiz to share information. The quiz is available in 27 countries and in 20 languages and to date, has been completed by 80,000 consumers.
• We have a longstanding commitment to tackle underage drinking.
• Our programmes reached more than 375,000 people this year, across 20 countries.
• Our flagship education programme is 'Smashed.'
• During Covid-19, we launched Smashed Online in the UK, making it available to more than one million school children.
• As part of our innovative partnership with UNITAR to tackle drink driving, we also supported them in responding to Covid-19 with the launch of a series of online training resources.

42

A CLEAR STRATEGY DELIVERED

THROUGH OUR SIX PRIORITIES

• Sustain Quality Growth

• Embed Everyday Efficiency

• Invest Smartly

• Promote Positive Drinking

5

• Pioneer Grain to Glass Sustainability

43

• Our inclusive and diverse culture is core to our purpose and essential to our future growth.

43

CHAMPIONING INCLUSION AND DIVERSITY

50%

Female representation on Diageo's Board

39%

Gender diversity in senior roles

#1

For gender equality in the Equileap Gender Equality Report and Ranking

44

• We want to nurture great, diverse talent, with a range of backgrounds, skills and capabilities.
• Diversity of thought fuels growth and innovation in our organisation and brings us closer to our consumer base.
• Our commitment to inclusion and diversity goes beyond our business - we want to shape broader societal change.
• We were proud to announce in June, that within our $100 million global recovery fund, was a $20 million community fund to support social justice in the US.
• The fund will help Black communities and businesses in the US recover from Covid-19, and it will make new financial commitments to organisations working to tackle racism and inequality.
• Internally, we are developing a progressive framework on ethnic diversity for all of our markets.
• It will incorporate goals across a number of areas, including representation, talent attraction and brand partnerships.
• In recent years, we have made strong progress on gender diversity and that work will continue.
• We want to create the most inclusive and diverse culture that ensures all of our people thrive.

44

A CLEAR STRATEGY DELIVERED THROUGH OUR SIX PRIORITIES

1

2

3

4

5

6

Sustain Quality Growth

Embed Everyday Efficiency

Invest Smartly

Promote Positive Drinking

Champion Inclusion and Diversity

45

• Across our markets, we remain focussed on building a truly sustainable business for the long-term.

45

PIONEERING GRAIN TO GLASS SUSTAINABILITY

INVESTING IN SUSTAINABLE		PROVIDING CLEAN WATER AND SANITATION
MANUFACTURING AND PACKAGING

46

• In 2015, we set ambitious and stretching environmental and social targets for 2020.
• We were among the first companies to set an absolute, rather than relative, greenhouse gas reduction target.
• We have delivered our commitment to a 50% absolute reduction and have reduced emissions by 34% across our total value chain.
• We recently announced that our new Kentucky whiskey distillery, which will make Bulleit, is expected to be carbon neutral - one of the largest in North America, and a first for Diageo. The site will be powered by 100% renewable electricity.
• We achieved our target for water replenishment in water-stressed areas and achieved a 46% improvement in water-use efficiency. We have ensured that over 99.5% of our packaging is recyclable.
• Despite significant progress, we have not achieved all of our goals. For example, we have found reducing the overall weight of our packaging by 15% more challenging than expected.
• This drives us to innovate and push the boundaries with sustainable packaging.
• Last month, we announced the world's first, 100% plastic-free,paper-based spirits bottle, made entirely from sustainably sourced wood. The bottle will debut with Johnnie Walker in early 2021.
• Our support for communities has positively impacted millions of people within and beyond our business. In 2020, this included reaching over 250,000 people in Africa and India through our clean water, sanitation and hygiene projects.
• We are proud of the significant progress we have made - and are aware that we have more to do. During fiscal 21, we will launch our social and environmental strategy and targets for the decade to 2030.

46

CONFIDENT IN THE RESILIENCE OF OUR

BUSINESS AND INDUSTRY

Using superior insight to rapidly respond to changing consumer opportunities

Investing with agility in marketing and innovation

Partnering with customers to win across all channels and support the on-trade recovery

Driving efficiency in cost and cash management

Continuing to do business in the right way from grain to glass

Ensuring Diageo emerges stronger through the recovery

47

• Covid-19has created a challenging operating environment around the world.
• However, as you have heard this morning, our business is responding with agility and energy.
• We are engaging with consumers, investing behind our brands, partnering with our customers, driving efficiencies and ensuring we do business in the right way from grain to glass.
• As we manage through this period, our overarching focus is on emerging stronger.
• While the pace of the recovery remains uncertain, I am confident in our strategy, the resilience of our business, the strength of our culture and the determination of our people.
• Thank you

47

APPENDIX

Organic net sales growth	F20H1	F20H2*	F20
North America	6%	(1)%	2%
Europe and Turkey	3%	(31)%	(12)%
Africa	5%	(33)%	(13)%
Latin America and Caribbean	2%	(40)%	(15)%
Asia Pacific	4%	(38)%	(16%)
Diageo	4%	(23)%	(8)%

*F20 H2 growth rates are based on unrounded numbers and not necessarily identical to the difference of full year less first half due to acquisitions and disposals and reclassification.

48

No script

48

APPENDIX 1: 1/2

FORWARD LOOKING STATEMENTS

Net sales

We are not providing specific guidance for fiscal 21. Broadly we expect organic net revenue in the first half to be significantly impacted with sequential improvement in the first and second quarter as the on-trade further reopens, and consumer demand begins to recover.

Operating margin

While volumes are expected to improve sequentially we expect our first half of F21 to continue to be significantly impacted and margin diluted compared to an unaffected first half of last fiscal. Additionally we will increase marketing investment as demand recovers. We exited fiscal 2020 with Q4 margin dilution of over 10 ppt. Going into fiscal 21, we expect some sequential improvement in our operating margin in our first half compared to our second half of F20.

Exchange rate outlook

Given the continued uncertainty caused by the ongoing Covid-19 pandemic, we are not able to provide specific financial guidance and as such not able to provide the expected impact of exchange for the year ending 30th June 2021.

Net finance charges

Effective interest rate is expected to rise to roughly 3.0% for fiscal 21 due to a further reduction in swap portfolio gains along with the increased costs from our liquidity enhancement measures. Other finance charges are ahead of last year, driven by discount unwinds of financial liabilities. I expect fiscal 21 charges to be at a similar level.

Taxation before exceptionals

Our tax rate before exceptional items was 21.7%, within our guidance range of 21 to 22% for fiscal 20 which we are maintaining for fiscal 21.

49

No script

49

APPENDIX 1: 2/2

FORWARD LOOKING STATEMENTS

Capital expenditure

We do not expect to see material opportunities to decrease capex further as we work to complete projects underway to support long-term growth and enhancing brand experiences and increase investment supporting our sustainability agenda.

Post employment plans

Total cash contributions by the group to all post employment plans in the year ending 30 June 2021 are estimated to be approximately £140 million.

Dividend

We have announced a recommended final dividend of 42.47 pence in line with the final dividend in fiscal 19, bringing full year dividend growth to 2% and dividend cover to 1.6x. While there remains significant uncertainty in the short term, we have confidence in the long-term health of our business and the industry in which we operate. We will keep future returns of capital, including dividends, under review through fiscal 21 to ensure we allocate Diageo's capital in the best way to maximise value for the business.

Capital structure

While we remain committed to a leverage range of 2.5x to 3.0x adjusted net debt to EBITDA over the medium term we anticipate leverage to be above this range through the coming year. We expect these levels to peak when we report fiscal 21 interims, reflecting the trailing 12 months impact of Covid-19 at that time, and then to improve from there driven by the pace of recovery.

Return of Capital

In July 2019, we announced a three-year return of capital programme of up to £4.5 billion, and through January 2020 we returned £1.25bn through share buyback. In April we announced that we were not initiating the next phase of the programme during the remainder of fiscal 20. Given our elevated leverage ratio we have paused the programme until leverage is back within our target range.

50

No script

50

Cautionary statement concerning forward-looking statements

This document contains 'forward-looking' statements. These 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, objectives and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of changes in interest or exchange rates, the availability or cost of financing to Diageo, anticipated cost savings or synergies, expected investments, the completion of any strategic transactions or restructuring programmes, anticipated tax rates, changes in the international tax environment, expected cash payments, outcomes of litigation or regulatory enquiries, anticipated changes in the value of assets and liabilities related to pension schemes and general economic conditions. 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.

Factors that could cause actual results and developments to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:

• economic, political, social or other developments in countries and markets in which Diageo operates (including as a result of the Covid-19 pandemic), which may contribute to a reduction in demand for Diageo's products, adverse impacts on Diageo's customer, supplier and/or financial counterparties, or the imposition of import, investment or currency restrictions (including the potential impact of any global, regional or local trade disputes, including but not limited to any such dispute between the United States and the European Union and/or the United Kingdom) or any tariffs, duties or other restrictions or barriers imposed on the import or export of goods between territories;
• the impact of the Covid-19 pandemic, or other epidemics or pandemics, on Diageo's business, financial condition, cash flows and results of operation;
• the negotiating process surrounding, as well as the final terms of, the United Kingdom's future trading relationships with the European Union and other countries, which could lead to a sustained period of economic and political uncertainty and complexity whilst successor trading arrangements with other countries are negotiated, finalised and implemented, potentially adversely impacting economic conditions in the United Kingdom and Europe more generally as well as Diageo's business operations and financial performance;
• changes in consumer preferences and tastes, including as a result of changes in demographics, evolving social trends (including any shifts in consumer tastes towards small- batch craft alcohol, low or no alcohol, or other alternative products), changes in travel, holiday or leisure activity patterns, weather conditions, health concerns, pandemics and/or a downturn in economic conditions;
• changes in the domestic and international tax environment, including as a result of the OECD Base Erosion and Profit Shifting Initiative and EU anti-tax abuse measures, leading to uncertainty around the application of existing and new tax laws and unexpected tax exposures;
• the effects of climate change, or legal, regulatory or market measures intended to address climate change, on Diageo's business or operations, including on the cost and supply of water;

Continued on the following page

No script

51

Continued from the previous page

• changes in the cost of production, including as a result of increases in the cost of commodities, labour and/or energy or as a result of inflation;
• any litigation or other similar proceedings (including with tax, customs, competition, environmental, anti-corruption or other regulatory authorities), including litigation directed at the beverage alcohol industry generally or at Diageo in particular;
• legal and regulatory developments, including changes in regulations relating to production, distribution, importation, marketing, advertising, sales, pricing, labelling, packaging, product liability, antitrust, labour, compliance and control systems, environmental issues and/or data privacy or protection;
• the consequences of any failure by Diageo or its associates to comply with anti-corruption, sanctions, trade restrictions or similar laws and regulations, or any failure of Diageo's related internal policies and procedures to comply with applicable law or regulation;
• the consequences of any failure of internal controls, including those affecting compliance with existing or new accounting and/or disclosure requirements;
• Diageo's ability to maintain its brand image and corporate reputation or to adapt to a changing media environment;
• contamination, counterfeiting or other circumstances which could harm the level of customer support for Diageo's brands and adversely impact its sales;
• increased competitive product and pricing pressures, including as a result of actions by increasingly consolidated competitors or increased competition from regional and local companies, that could negatively impact Diageo's market share, distribution network, costs and/or pricing;
• any disruption to production facilities, business service centres or information systems, including as a result of cyberattacks;
• increased costs for, or shortages of, talent, as well as labour strikes or disputes;
• Diageo's ability to derive the expected benefits from its business strategies, including in relation to expansion in emerging markets, acquisitions and/or disposals, cost savings and productivity initiatives or inventory forecasting;
• fluctuations in exchange rates and/or interest rates, which may impact the value of transactions and assets denominated in other currencies, increase Diageo's cost of financing or otherwise adversely affect Diageo's financial results;
• movements in the value of the assets and liabilities related to Diageo's pension plans;
• Diageo's ability to renew supply, distribution, manufacturing or licence agreements (or related rights) and licences on favourable terms, or at all, when they expire; or
• any failure by Diageo to protect its intellectual property rights.

Continued on the following page

No script

52

Other Information

All oral and written forward-looking statements made on or after the date of this document and attributable to Diageo are expressly qualified in their entirety by the above risk factors and by the 'Risk factors' section contained in the annual report on Form 20-F for the year ended 30 June 2019 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 2020.

The information in this document 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 document may include 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.

No script

53

No script

54