Diageo : 2020 Preliminary Results overview

PERFORMANCE AMBITION

"OUR AMBITION IS TO BE ONE OF THE BEST PERFORMING, MOST TRUSTED AND RESPECTED

CONSUMER PRODUCTS COMPANIES IN THE WORLD"

Sustained performance	Key financials	Our Sustainability and Responsibility
priorities

£bn		Net sales* increased from £6,636m in F03 to £11,752m in F20
15	Operating profit increased from £1,902m in F03 to £3,494m in F20
10			n NSV
			n OP
5
0
	03	10	20
%		Organic growth

15		n NSV
10		n OP
5
0
-5
-10
-15
03	10	20

F20 reported	Organic
figures	movement
Volume	(11)%		Free cash
217.0mEU
		flow
Net sales	(8)%		£1.6bn
£11.8bn
Marketing	(10)%		Reported
£1.8bn
	operating margin1
Operating profit1	(14)%		29.7%
£3.5bn
Dividend	2 %	2	Adj. net debt 3
69.88 pence	2	/EBITDA 1 ratio
Eps1	(16)%	3.3x
109.4 pence

#1 Promote Positive Drinking

#2 Champion Inclusion and Diversity

#3 Pioneer Grain to Glass Sustainability

Growing dividend per share

F20 dividend: 69.88 pence per share

Year ended 30 June. Percentage increases are organic growth movements before exceptional items and have not been restated for accounting changes.

*Net sales is after deducting excise duties. 2003-2004 as reported under UK GAAP. 2005 restated for IFRS. 2009 restated for IFRS. 2012-2013 restated for IAS19 and IFRS11.

• Pre exceptional items; 2 Reported movement; 3 Adjusted to include post employment liabilities

F03 F04 F05 F06 F07 F08 F09 F10 F11 F12 F13 F14 F15 F16 F17 F18 F19 F20

		World leading brands1			VOLUME		NET SALES		MARKETING
Global giants	Local stars	Reserve
% of net sales	39%	20%	21%
					217.0EUm		£11,752m		£1,841m

n Scotch	n Rum	n Tequila
n Vodka	n IMFL whisky	n Beer
n	US whiskey	n	Liqueurs	n	Ready to drink
n	Canadian whisky	n	Gin	n	Other

• Global giants and Local stars including reserve variants.

GEOGRAPHIC BREADTH - F20 FY AT A GLANCE

	North America		Europe and Turkey		Africa
% of net sales	39%	22%	12%

Latin America and Caribbean		Asia Pacific
8%	19%
Other**		Other**

Net sales contribution by

Other**

Canada

DBC USA

markets

Other

Ready to drink

Beer

categories

Other**

Turkey

US Spirits

Other

Ready to drink

Beer

Spirits

Other**

South Africa

Nigeria

Africa

EuropeRegional

Markets

Other

Ready to drink

Spirits

Beer

	PEBAC
	North Asia
Andean	PUB
India
East Africa	South East
Asia

CCA

Australia

Mexico

Greater China

Other	Other
Ready to drink	Ready to drink
Beer
	Beer

Spirits

Spirits

Spirits

Net sales	2%
movement*
Operating profit	4%
movement*

(12)%	(13)%	(15)%	(16)%
(24)%	(56)%	(29)%	(29)%

North America delivered net sales growth

of 2%, with growth in all three markets.

In US Spirits, net sales increased 2%.

Highlights

Net sales in Canada increased 7% with good broad-based growth across all categories, with the exception of beer which was more impacted by the on-trade channel closure.

DBC USA grew net sales 8% as a result of the continued strong performance of ready to drink products growing 19%. In beer net sales were down 5%.

Europe and Turkey net sales declined 12%. Continental Europe declined by 15% while Great Britain was down 4%.

Gin declined 9%, driven by declines of Gordon's and Tanqueray mainly in Continental Europe.

In Europe, beer was particularly impacted by the impact of on-trade closures, declining 20%.

In Turkey, net sales declined 6%, driven by declines in raki and vodka.

Africa net sales declined 13%. Growth in the first half was offset by the impact of Covid-19 in the second half. East Africa declined 10%, Nigeria 20%, South Africa 25% and Africa Regional markets 8%.

Beer declined 13% as growth of Serengeti was offset by other key beer brands, including Guinness, Tusker and Senator, mainly due to on-trade closures.

Spirits declined 14%, mainly impacting Johnnie Walker, Kenya Cane and Smirnoff.

Latin America and Caribbean net sales declined 15%. All markets declined except Andean which grew 8% due to a strong first half and continued momentum in scotch in Colombia.

Scotch overall declined 21% as growth in Buchanan's in Colombia and Brazil, and White Horse in Brazil were offset by declines in Johnnie Walker across the region.

Tequila was down 11% as strong Don Julio performance in Caribbean and Central America was more than offset by a decline in Mexico.

Gin grew double-digit primarily driven by Tanqueray in Brazil.

Asia Pacific net sales declined 16%. Despite growth in the first half for the region, all markets other than Australia declined due to the impact of Covid-19.

Scotch declined 20%, driven by Johnnie Walker in Travel Retail Asia and Middle East, South East Asia, and Korea.

Greater China declined 7% as scotch, liqueur and beer growth was offset by declines in Chinese white spirits.

India net sales declined 17%, driven by the continued economic slowdown exacerbated by lockdowns impacting both Prestige and Above and Popular segments.

* Organic growth year ended 30 June 2020 ** Other principally Travel Retail

FINANCIAL RESULTS - F20 FY

									Net sales (£ million)															Free cash flow (£ million)
12,867	32																			2,608
																	355		11,752			(1)
								(76)		(10)																										1,634
												(1,416)									(541)	(106)		(47)	(96)			(56)			(127)
2019	Exchange(i)	Acquisitions	Reclassification(ii) Volume	Price/mix	2020
		2019 Exchange(iii) Operating	Working	Capex		Tax	Interest	Other(vi)	2020
									and
								disposals																		profit(iv)	capital(v)
									Operating margin (%)													Return on average invested capital (%)(viii)

31.4%

			15.1%	22bps
				(12)bps	29bps	12.4%
		3bps
		18.2%	(260)bps	(24)bps	(22)bps
(1097)bps	(9)bps	22bps
(8)bps	(60)bps
		(174)bps

Consistent first half performance significantly impacted

by Covid-19 in the second half

Reported net sales (£11.8 billion) were down 8.7% driven by organic declines. Reported operating profit (£2.1 billion) declined 47.1%, driven mainly by exceptional operating items and organic net sales.

Organic net sales were down 8.4%, with growth in North America more than offset by declines in all other regions. Organic volumes were down 11.2%..

Organic operating profit was down 14.4%, ahead of organic net sales, driven by volume declines, cost inflation and unabsorbed fixed costs that were partially offset by short term cost reductions and ongoing productivity benefits.

Solid cash flow delivery with net cash from operating activities at £2.3 billion, £0.9 billion lower than prior period and free cash flow at £1.6 billion, £1.0 billion lower than prior period, in each case largely due to lower organic operating profit, lower dividends from associates, one-off tax impacts and increased working capital use.

2019

Exchange Acquisitions and Organic

Associates

Tax

Other

2020

disposals operating profit

and

2019

Exceptional Exchange

Acquisitions Other(vii) Gross margin Marketing

Other

2020

growth

joint ventures

operating items

and

operating

disposals

items

(i) Exchange rate movements reflect the adjustment to recalculate the reported

Measures have been put in place to reinforce Diageo's already solid liquidity including pausing the current three-year return of capital programme, bringing forward a £2.0bn USD bond issuance launched in April 2020 and putting in place an additional committed credit facility of

Basic earnings per share (pence)

130.7

(49.2)

3.9

1.1

1.5

0.1

60.1

(1.2)

(24.4)

(1.2)

(1.2)

2019

Exceptional

Acquisitions

Organic

Associates

Finance

Tax(xi)

Share

Non-

Other(xii)

2020

items

and

operating

and

charges(x)

buyback(ix)

controlling

after tax

disposals(ix)

profit

joint ventures

interests

growth

results as if they had been generated at the prior period weighted average exchange rates.

1. For the year ended 30 June 2019 trade investment of £10 million has been reclassified from marketing to net sales.
2. Exchange on operating profit before exceptional items.
3. Operating profit excludes exchange, depreciation and amortisation, post employment charges and other non-cash items.
4. Working capital movement includes maturing inventory.
5. Other items include post employment payments, dividends received from associates and joint ventures, and movements in loans and other investments.
6. Fair value adjustment and reclassification.
7. ROIC calculation excludes exceptional operating items from operating profit.
8. Includes finance charges net of tax.
9. Excludes finance charges related to acquisitions, disposals and share buyback.
10. Excludes tax related to acquisitions, disposals and share buyback.
11. Fair value adjustments and exchange on operating profit

£2.5 billion.

Exceptional operating items included non-cash impairment charges of £1.3 billion. These were in India, Nigeria, Ethiopia and on the Windsor brand in Korea, reflecting the impact of Covid-19 and challenging trading conditions.

Basic eps of 60.1 pence decreased by 54.0% primarily due to exceptional operating items. Pre-exceptional eps declined 16.4% to 109.4 pence, driven primarily by lower operating profit.

The final recommended dividend of 42.47 pence per share is the same as the final dividend for fiscal 19. This brings the full year dividend for fiscal 20 to 69.88 pence per share, an increase of 2%

	KEY FINANCIAL INFORMATION											BUSINESS REVIEW
				Organic	Reported				Organic	Reported						F20		F19				F20		F19
		F20	F19	growth%	growth%		F19	F18	growth%	growth%					%*	EUm	%*	EUm			%*	£m	%*	£m
Volume	EUm	217.0	245.9	(11)	(12)		245.9	240.4	2	2		NORTH AMERICA			-	48.4	2	49.4			2	4,623	5	4,460
Net sales	£m	11,752	12,867	(8)	(9)		12,867	12,163	6	6		EUROPE AND TURKEY			(11)	40.2	(2)	45.4		N	(12)	2,567	4	2,939
Marketing	£m	1,841	2,042	(10)	(10)		2,042	1,882	8	9		AFRICA		V	(13)	28.8	1	33.6		E	(13)	1,346	7	1,597
				T
														O
Operating profit before exceptional items	£m	3,494	4,116	(14)	(15)		4,116	3,819	9	8		LATIN AMERICA AND CARIBBEAN		L	(15)	19.0	1	22.4		S	(15)	908	9	1,130
			U
														M						A
Operating margin expansion*	bps	(212)	83				83	78				ASIA PACIFIC		(15)	80.6	5	95.1		L	(16)	2,270	9	2,688
							E
																				E
Operating profit	£m	2,137	4,042		(47)		4,042	3,691		10		CORPORATE								S	(29)	38	2	53
Profit attributable to parent company's shareholders	£m	1,409	3,160		(55)		3,160	3,022		5		DIAGEO			(11)	217.0	2	245.9			(8)	11,752	6	12,867
Basic earnings per share	pence	60.1	130.7		(54)		130.7	121.7		7
Earnings per share before exceptional items	pence	109.4	130.8		(16)		130.8	118.6		10						F20		F19				F20		F19			F20	F19
Tax rate including exceptional items	%	28.8	21.2		36		21.2	15.9		33					%*	£m	%*	£m			%*	£m	%*	£m			%*	%*
Tax rate before exceptional items	%	21.7	20.6		5		20.6	20.7		-		NORTH AMERICA			(6)	727	11	762		O	4	2,034	3	1,948		O	45.2	43.9
																				P						P
																				E
Free cash flow	£m	1,634	2,608				2,608	2,523				EUROPE AND TURKEY		M	(12)	428	6	490		R	(24)	757	2	1,014		E	29.5	34.5
									R
														A						A						A
ROIC	%	12.4	15.1				15.1	14.3				AFRICA		(8)	160	3	174		T	(56)	101	50	275		9.0	17.2
							R		I		T
														K						N						I
Average net debt	£m	(12,708)	(10,393)				(10,393)	(9,063)				LATIN AMERICA AND CARIBBEAN		(15)	155	6	201		(29)	248	19	365		N	27.1	32.3
							E		G		G
														T						P
												ASIA PACIFIC		I	(11)	365	7	412		R	(29)	501	26	703		M	22.3	26.2
														N						O						A
												CORPORATE		G	-	6	(25)	3		F	20	(147)	(20)	(189)		R
															I		G
																				T						I
												DIAGEO			(10)	1,841	8	2,042		**	(14)	3,494	9	4,116		N	30.2	32.0

* Organic, ** Pre-exceptional

FINANCIAL RESULTS - F20 FY

STRATEGIC MARKETS PERFORMANCE (growth %)

		Organic volume		Organic net sales		Reported net sales
		F20	F19		F20	F19		F20	F19
NORTH AMERICA		-	2		2	5		4	8
US Spirits	(1)	2		2	5		3	8
Diageo Beer USA	7	8		8	10		10	15
Canada	7	3		7	5		7	4
EUROPE AND TURKEY		(11)	(2)		(12)	4		(13)	-
Europe	(10)	-		(12)	3		(12)	2
Turkey	(12)	(13)		(6)	11		(7)	(20)
AFRICA		(13)	1		(13)	7		(16)	7
East Africa	(11)	12		(10)	13		(9)	18
Africa Regional Markets	(12)	(3)		(8)	8		(13)	9
Nigeria	(10)	(10)		(20)	(7)		(19)	(3)
South Africa	(23)	(2)		(25)	6		(33)	(6)
LATIN AMERICA AND CARIBBEAN		(15)	1		(15)	9		(20)	6
PUB	(14)	(1)		(7)	6		(17)	(3)
Mexico	(14)	4		(19)	8		(21)	8
CCA	(17)	5		(16)	13		(16)	14
Andean	2	(16)		8	19		(2)	14
PEBAC	(29)	13		(44)	6		(47)	3
ASIA PACIFIC		(15)	5		(16)	9		(16)	7
India	(15)	5		(17)	8		(16)	4
Greater China	(4)	11		(7)	19		(7)	19
Australia	5	3		6	6		2	2
South East Asia	(19)	2		(23)	8		(21)	9
North Asia	(18)	12		(15)	(2)		(14)	-
Travel Retail Asia and Middle East	(47)	4		(46)	13		(47)	15
DIAGEO		(11)	2		(8)	6		(9)	6

1. Organic equals reported volume movement except for Diageo total (12)%, vodka (10)%, Canadian whisky 6%, rum (12)%, liqueurs (5)% and ready to drink 1%, which were impacted by acquisitions and disposals.
2. Vodka, rum, gin including IMFL brands.
3. Organic equals reported volume movement.
4. Spirits brands excluding ready to drink.
5. Growth figures represent total Chinese white spirits of which Shui Jing Fang is the predominant brand.
6. Vodka and Ketel One includes Ketel One vodka and Ketel One Botanical.

CATEGORY AND BRAND PERFORMANCE (growth %)

		Organic volume		Organic net sales		Reported net sales
		F20(i)	F19		F20	F19		F20	F19
SPIRITS(iv)		(11)	3		(8)	7		(8)	6
SCOTCH	(16)	2		(17)	6		(17)	6
US WHISKEY	(1)	2		3	4		4	9
CANADIAN WHISKY	7	6		8	6		8	8
VODKA(ii)(vi)	(8)	2		(8)	2		(8)	4
RUM(ii)	(11)	(3)		(7)	(2)		(7)	(3)
LIQUEURS	(4)	1		(4)	4		(5)	4
TEQUILA	12	19		25	29		27	37
GIN(ii)	(9)	17		(4)	22		(5)	23
IMFL WHISKY	(14)	6		(14)	8		(13)	3
BEER		(15)	1		(15)	3		(15)	4
READY TO DRINK		5	7		8	12		3	12
DIAGEO		(11)	2		(8)	6		(9)	6
		Organic volume		Organic net sales		Reported net sales
GLOBAL GIANTS(iv)		F20(iii)	F19		F20	F19		F20	F19
Johnnie Walker	(20)	2		(22)	7		(22)	7
Smirnoff	(9)	-		(6)	3		(6)	5
Captain Morgan	(2)	(1)		(2)	(2)		-	1
Baileys	(3)	-		(3)	4		(3)	5
Tanqueray	(5)	17		(4)	19		(4)	21
Guinness	(15)	-		(16)	2		(16)	2
LOCAL STARS(iv)
Crown Royal	7	6		8	6		10	10
Yenì Raki	(22)	(19)		(15)	6		(15)	(24)
JεB	(18)	(10)		(18)	(8)		(18)	(9)
Buchanan's	(14)	6		(12)	6		(13)	8
Windsor	(44)	(1)		(26)	(16)		(28)	(15)
Old Parr	(17)	4		(15)	3		(19)	1
Bundaberg	3	(4)		-	(1)		(4)	(5)
Black & White	(7)	10		(5)	14		(10)	9
Ypióca	(17)	(7)		(14)	(1)		(24)	(12)
McDowell's	(17)	7		(15)	8		(15)	4
Shui Jing Fang(v)	(9)	16		(16)	22		(16)	22
RESERVE(iv)
Scotch malts	(5)	7		(3)	12		(1)	12
Cîroc vodka	(17)	(8)		(17)	(8)		(16)	(5)
Ketel One(vi)	(4)	9		(6)	10		(4)	15
Don Julio	(1)	15		15	26		16	30
Bulleit	4	9		3	7		6	12