Half Year Results

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 Diageo Half
Year Results
11 February 2010
Paul Walsh
CEO
 Building the business in a challenging environment

• Organic net sales down 2%

• Organic operating profit down 3%
• Favourable currency movements led to reported net
sales up 3%, operating profit broadly flat

• While basic eps is down 10%, eps pre-exceptionals

and discontinued operations was up 5%

• Interest costs reduced by £100 million

• Focus on working capital reduction led to an increase
of £517 million in free cash flow to £0.9 billion

• 5% increase in the interim dividend

6 months ended 31 December 2009. Net sales is sales after deducting excise duties. 3
Building a stronger business well positioned
for the future

• Effective cost management

• Focused marketing and innovation have

built stronger brands

• Enhanced sales capabilities have delivered

stronger customer relationships

4
Nick Rose
CFO
 Organic decline in net sales. Positive exchange rate
movements led to reported growth
Volume, Net sales,
eu m £m
H1 F’09 78.2 5,068

Exchange - 207

Organic movement (1.4) (82)

Acquisitions/disposals - 14

H1 F’10 76.8 5,207

Organic growth (2)% (2)%

Reported growth (2)% 3%

6 months ended 31 December. 6

 Decision to reduce US spirits shipments and
continued weakness in Spain, Ireland and Eastern
Europe drove organic net sales decline
Net sales growth*
10%
8%

4%

(1)%

(5)%
(2)%

(6)%

North America Europe Asia Pacific LA&C Africa GTME Diageo

6 months ended 31 December 2009. *Organic growth. 7

 Standard segment continues to be resilient in a
weak consumer environment
Net sales growth* by price tier
0%

(2)%

(4)% (4)%

Value Standard Premium Super-premium

Price/Mix (4)% 1% - 6%

% of Diageo 2% 61% 29% 8%

6 months ended 31 December 2009. *Organic growth. 8

 Q2 showed improvement mainly reflecting the
easing of comparisons
Net sales growth* 2%

(2)%

(6)%

(7)%

Q3 F'09 Q4 F'09 Q1 F'10 Q2 F'10

*Organic growth. 9
 Positive exchange rate movements partially offset
organic operating profit decline
Volume, Net sales, Operating
eu m £m profit*, £m
H1 F’09 78.2 5,068 1,643 **

Exchange - 207 43

Organic movement (1.4) (82) (50)

Acquisitions/disposals - 14 (5)

H1 F’10 76.8 5,207 1,631

Organic growth (2)% (2)% (3)%

Reported growth (2)% 3% (1)%

6 months ended 31 December. *Excluding exceptional items. **Restated for IAS 38, IFRS 8 and the accounting change on returnables. 10
 International was the driver of organic operating
profit growth
16%

£63m

5%

£5m

£(11)m
£(18)m
(2)%
(3)%
£(50)m

(3)%

£(89)m

North America Europe International Asia Pacific Corporate Diageo

6 months ended 31 December 2009. 11

 Operating margin reflects gross margin decline and
an increase other costs partially offset by savings in
marketing spend and lower overheads

Margin movement,
bps (as % of GSV)
Gross margin (0.8)

A&P 0.5

Overheads 0.6

Other costs (0.9)

Operating margin (0.6)

6 months ended 31 December 2009. Organic movement in operating margin. Operating margin is calculated using sales. 12
 Focused marketing spend by region and by brand
and capturing cost efficiency and media deflation
Marketing spend as % of net sales

H1 H1 Difference**,
F’09* F’10 ppts
North America 13.3 13.4 0.1

Europe 16.5 14.9 (1.6)

International 10.7 10.7 0.0

Asia Pacific 22.6 22.6 0.0

Total 14.5 13.9 (0.6)

6 months ended 31 December. *Restated for accounting changes. **Organic growth. 13

 Lower operating profit and associate income were
more than offset by lower net finance charges

H1 F’09**, H1 F’10, Movement,

£m £m £m
Operating profit* 1,643 1,631 (12)

Associate income net of tax 120 94 (26)

Trading profit* 1,763 1,725 (38)

Net finance charges (344) (237) 107

PBET 1,419 1,488 69

6 months ended 31 December. *Excluding exceptional items. **Restated for accounting changes. 14
 Finance charges benefited from lower interest rates
H1 F’09 H1 F’10 Movement
£m £m £m
Net interest charge (297) (197) 100

Finance charge from post

employment obligations - (25) (25)

Other finance charges (28) (4) 24

Exchange movements on short

term inter-company loans and
other financial investments (19) (11) 8

Net other finance income (47) (40) 7

Net finance charges (344) (237) 107

6 months ended 31 December. 15

 Increase in reported tax rate and restructuring costs

H1 F’09**, H1 F’10, Movement,

£m £m £m
PBET* 1,419 1,488 69

Exceptionals (13) (95) (82)

PBT* 1,406 1,393 (13)

Tax - Underlying at 22% (313) (334) (21)

Tax - Exceptionals 103 24 (79)

Profit for the period* 1,196 1,083 (113)

6 months ended 31 December. *Before discontinued operations. **Restated for accounting changes. 16
 Restructuring costs totalling £95 million were
taken to exceptionals
H1 F’09, H1 F’10,
£m £m
Global restructuring - 21

Global Supply operations - 69

Brewing operations in Ireland 13 5

Total 13 95

Cash paid 2 76

6 months ended 31 December. 17

 Focus on cash has delivered exceptional results
in the half
£31m
£769m

£904m

£(110)m

£387m

£(94)m
£(18)m
£(61)m

H1 F'09 Decrease in Increase in net Increase in tax Change in Decrease in net Other H1 F'10
operating profit interest paid paid working capital capex spend

6 months ended 31 December. 18

Decrease in net borrowings driven by strong free
cash flow generation
£7,419m £238m £7,304m
£551m

£(904)m

Net borrowings at Free cash flow Dividends paid Exchange & other Net borrowings at
30 June 2009 31 December 2009

19
 Movement on eps reflects benefit of exchange
partially offset by 2% organic decline
H1 F’09* H1 F’10
pence pence %
Basic eps 45.5 40.9 (10)

Restructuring costs after tax** 0.4 3.3

Exceptional tax (4.0) -

Basic eps before exceptionals** 41.9 44.2 5

3.7 pence 45.5 pence 44.2 pence

41.9 pence

(0.1) pence (0.1) pence (0.4) pence (0.8) pence

H1 F'09 basic Exchange Disposals Restated H1 Acquisitions IAS 21 & 39 Underlying H1 F'10 basic
eps before F'09 basic eps eps before
exceptionals** before exceptionals**
exceptionals**
6 months ended 31 December. *Restated for accounting changes. **Adjusted for discontinued operations. 20
Exchange rates in the period have again had a
significant impact on reported results
H1 F’10 Full year F’10
actual, £m estimate, £m
Operating profit translation impact 35 (25)
Operating profit transaction impact 53 100
88 75
Impact of IAS 21 on operating profit (45) (45)
43 30
Impact on associates 8 5
Impact on net finance charge 13 5
Impact of IAS 39 on interest expense 28 10
Impact of IAS 21 & IAS 39 on other finance charges 8 25
49 40
Impact of forex movements on PBET 100 75
21
 Economic profit and ROIC were negatively impacted
by higher invested capital

• Economic profit was £653 million,

down £59 million

• ROIC was 17.6%, down 110 basis points

6 months ended 31 December 2009. 22

Summary

• Challenging comparables in the half

• Focused on building a stronger business

• Full year organic operating profit

guidance maintained

23
Paul Walsh
CEO
Robust business model in uncertain environment

• Uncertain economic and consumer environment continued

• Varied market trends

• Consumer engagement through brand focus and flexible

application of marketing campaigns

• Innovation agility to meet changing consumer trends

• Financial strength

25
 Category breadth to deliver on consumer trends
in all regions
% of regional
net sales
100 Wine

RTDs
Other spirits
Liqueur
75 NA Whiskey
Rum
Vodka
Beer
50

25 Scotch

0
North America Europe International Asia Pacific

% of Diageo
33 30 27 10
net sales
6 months ended 31 December 2009. 26
North America
Continued focus on priority brands, innovation and proven
marketing in a weak consumer environment

• Weak economic recovery and consumer confidence

• Lower shipments of US spirits impacted performance while

positioning Diageo for the future

• Premium spirits remain the most resilient segment

• Share of voice increased and marketing spend re-prioritised

to optimise returns

• Innovation focused on engaging consumers with our brands

and widening consumer occasions
27
Europe
Focus on growth opportunities and efficiencies in a
tough environment

• Increased trade and consumer investment delivered

strong net sales growth in GB

• Iberia and Ireland remained challenging

• Short-term challenges in Eastern Europe

• Gained share in tough emerging markets

• Focused marketing spend

28
International
Continues to drive overall performance

• Latin America and Caribbean, Africa and Global

Travel and Middle East all delivered net sales growth

• Premium beer drove growth in Africa

• Breadth of scotch offering drove share growth in

Latin America

• Johnnie Walker returned to growth in Global Travel

and Middle East

29
Asia Pacific
Improvement in consumer trends although still affected
by some de-stocking

• Australia returned to growth with ready to drink

and innovation

• Maintained scotch leadership in declining

Korean market

• Strong underlying performance in scotch in China

• Strong growth in South East Asia led by Johnnie

Walker and Guinness

30
Great marketing increased brand equity

• Creating memorable experiences, building

the long-term health of brands

• Intelligent investment, prioritising the most

attractive opportunities

• Benefiting from media rate deflation and

refocusing investment to most relevant
channels

31
Tactical opportunities harnessed
through innovation

• Products tailored for changing market trends

• Declines in disposable income create

demand for smaller pack sizes

• Consumers willing to try new flavours from

trusted brands

• Selected ultra-premium innovation continues

32
Confidence in Diageo’s platform for growth

• Broad category range and geographic reach

delivered resilient performance

• Great marketing, sales focus and innovation

has built brand equity

• Enhanced financial strength

• Diageo has successfully managed through the

tough environment

33
Questions
 Appendix: Performance of other brands* in the
6 months ended 31 December 2009
Volume Organic net sales Reported net sales
movement, % movement, % movements, %

Local priority brands

North America (6) (7) (6)

Europe (1) (6) (1)

International 4 7 12

Asia Pacific (6) (4) 7

Total LPBs (3) (3) 1

Category brands
North America - 3 8

Europe 9 3 9

International 1 19 27

Asia Pacific 5 9 20

Total category brands 3 8 15

Total other brands - 2 7

*The classification of brands as “local priority brands” and “category brands” has been discontinued. 35
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