Diageo : 2023 Interim Results presentation with script

Delivering sustainable long-termgrowth

Interim Results Fiscal 23

Ivan Menezes &

Lavanya Chandrashekar

26 January 2023

No script

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D E L I V E R I N G S U S T A I N A B L E L O N G - T E R M G R O W T H

Cautionary statements concerning forward-looking statements and non-GAAP financial measures

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 the statements related to Diageo's fiscal 23 outlook, Diageo's medium-term guidance for fiscal 23 to fiscal 25 and any other statements with respect to 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.

These factors include, but are not limited to: (i) economic, political, social or other developments in countries and markets in which Diageo operates, including macroeconomic events that may affect Diageo's customers, suppliers and/or financial counterparties; (ii) the impact of the Covid-19 pandemic, or any other global or regional public health threats, on Diageo's business, financial condition, cash flows and results of operation; (iii) the elevated geopolitical instability as a result of Russia's invasion of Ukraine; (iv) the effects of climate change, or legal, regulatory or market measures intended to address climate change; (v) changes in consumer preferences and tastes, including as a result of disruptive market forces, changes in demographics and evolving social trends (including any shifts in consumer tastes towards at-home occasions, premiumisation, small-batch craft alcohol, or lower or no alcohol products and/or developments in e-commerce); (vi) changes in the domestic and international tax environment that could lead to uncertainty around the application of existing and new tax laws and unexpected tax exposures; (vii) changes in the cost of production, including as a result of increases in the cost of commodities, labour and/or energy due to inflation and/or supply chain disruptions; (viii) any litigation or other similar proceedings (including with tax, customs, competition, environmental, anti-corruption or other regulatory authorities); (ix) legal and regulatory developments, including changes in regulations relating to environmental issues and/or e-commerce; (x) the consequences of any failure of internal controls; (xi) 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; (xii) cyber-attacks or any other disruptions to core business operations; (xiii) contamination, counterfeiting or other circumstances which could harm the level of customer support for Diageo's brands and adversely impact its sales; (xiv) Diageo's ability to maintain its brand image and corporate reputation or to adapt to a changing media environment; (xv) increased competitive product and pricing pressures, including as a result of introductions of new products or categories that are competitive with Diageo's products and consolidations by competitors and retailers; (xvi)increased costs for, or shortages of, talent, as well as labour strikes or disputes;

1. Diageo's ability to derive the expected benefits from its business strategies, including Diageo's investments in e-commerce and its luxury portfolio; (xviii) fluctuations in exchange rates and/or interest rates; (xix) a tightening of global financial conditions, including an extended period of constraint in the capital markets which Diageo may access; (xx) movements in the value of the assets and liabilities related to Diageo's pension plans; (xxi) 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 (xxii) any failure by Diageo to protect its intellectual property rights.

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 cautionary factors and by the 'Risk Factors' included in Diageo's Annual Report on Form 20-F for the year ended 30 June 2022 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.

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 2023.

This presentation includes financial measures which are not presented in Diageo's financial statements prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and are considered "non-GAAP financial measures" under US Securities and Exchange Commission rules. Please refer to the section "Definitions and reconciliations of non-GAAP measures to GAAP measures" set out at the end of this presentation.

2 Interim Results Fiscal 23

No script

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D E L I V E R I N G S U S T A I N A B L E L O N G - T E R M G R O W T H

	1.	Delivered strong H1 F23 results with quality
		growth and improving margins
Continued	2.	Quality market share gains
strong growth	3.
in H1 F23	Continued investment in long-term growth
	4.	Continued progress on Society 2030
	5.	Continued creating shareholder value

3	Interim Results Fiscal 23

• Good morning, everyone, and thank you for joining us.
• I am pleased to share that in the first half of fiscal 23, we delivered organic top‐line and operating profit growth ahead of our medium‐term guidance.
• This continues our track record of being a quality growth compounder.
• We are driving consistent top‐line performance and delivering operating margin expansion while reinvesting smartly in our brands, fuelled by productivity savings.
• Our business is 36% bigger on a constant basis than pre‐Covid.
• • Total beverage alcohol remains an attractive, growing and resilient market.
  • Spirits continued to gain share.
  • Premiumisation is continuing.
  • We are seeing resilience in the consumer.
  • We have a diversified footprint and an advantaged portfolio that is driving quality market share gains.
• We believe that our core capabilities across brand‐building, digital, supply chain and culture are a competitive advantage.
• They support delivery of quality sustainable growth, our strong track record in ESG and everyday efficiency.
• I will begin with an overview of our first‐half performance, before Lavanya reviews our financial results in more detail.

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D E L I V E R I N G S U S T A I N A B L E L O N G - T E R M G R O W T H

Strong H1 F23	Organic	Organic	Organic
volume	net sales value	operating margin
results across key				growth	expansion
		+1.8%			+9.4%			+9bps
financial metrics
4 Year organic	Free	Pre-exceptional	Interim
cash flow	eps	dividend
NSV CAGR	£0.8bn	98.6p	30.83p
+8%
		-£0.8bn	+15%	+5%

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Interim Results Fiscal 23	Source: Diageo internal information
For additional information on non-GAAP measures please see financial/legal appendix

• In the first half of fiscal 23, our top‐line grew by over 9% and I am pleased with our momentum as we exited the period in December, and our start in January.
• Volume grew 2% in the first half, even as we implemented strategic price increases.
• We expanded operating margin despite inflationary pressure, invested for growth, drove premiumisation and delivered productivity savings.
• Our free cash flow declined year‐on‐year, primarily due to lapping a higher level of creditor increases in the prior year, and phasing of spend in the first half of fiscal 23. As Lavanya will discuss in more detail, we expect free cash flow to accelerate in the second half of the fiscal.
• And we are again increasing our dividend, up 5% this half, maintaining our track record of increases since Diageo's creation 25 years ago.

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D E L I V E R I N G S U S T A I N A B L E L O N G - T E R M G R O W T H

Strong organic net sales growth

+9.4%

	NAM
Organic volume	+3%
growth
+1.8%	LAC
	+20%

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Europe

+10%

APAC

+17%

Africa

+6%

Source: Diageo internal information. For additional information on non-GAAP measures, please see financial/legal appendix.

In June 2022 Diageo announced that it would wind down its business in Russia over the following six months.

• Our performance in the first half of fiscal 23 demonstrates our advantaged portfolio and broad geographic footprint in action.
• North America grew organic net sales value 3%, with strong price growth, and mix.
• As anticipated, the US spirits category growth is normalising, trending towards the historical mid‐ single digit range.
• We continue to see the long‐term trends of spirits gaining share of TBA.
• And, premiumisation is sustaining. 33% of American drinkers surveyed said they had spent $50 or more on a bottle of alcohol in 2022, that's up from 24% in 2021.
• We continued to increase A&P investment this half, on top of significantly upweighting A&P investment over the last four years, driving stronger brand equity across the portfolio.
• And we are holding share of TBA.
• In US spirits, depletions value grew ahead of our shipments.
• Crown Royal, our largest US brand, continued to lead the Canadian whisky category and has increased depletions, supported by sustained investment, our strong brand building capabilities and iconic partnerships, such as with the NFL.
• In Europe, we grew organic net sales 10%. Consumer demand was resilient, despite the challenging economic environment.
• In Latin America, for the fourth consecutive half, net sales grew double‐digit driven by continued price increases, ongoing portfolio premiumisation and volume growth.
• I am very proud of our performance in Latin America.

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