Diageo plc

Good morning, everyone. I'm pleased to share with you another set of good, consistent results. Once again, we're demonstrating progress and momentum towards achieving our performance ambition to be one of the best performing, most trusted and respected consumer product companies in the world. Despite the significant progress we've made in recent years as an organization, we are not complacent. We are relentless in our desire to achieve our performance ambition. We remain focused on our six priorities, which I will go to in more detail later. We continue to measure our progress against these priorities throughout the organization. And once again, I'd like to thank all the RGO employees for their contribution to these results. In the first half of fiscal 20, organic net sales grew by 4.2% in line with our medium term mid single digit top line guidance, largely driven by strong price mix performance. Growth was broad-based, but we had some market-specific challenges in India, within Latin America and Caribbean, and in travel retail. At a category level, rapid growth in tequila, Canadian whiskey, and Chinese white spirits balanced softer Scotch performance. These results, lapping last year's very strong first half, reflect the resilience of our strong and diversified geographic footprint and portfolio. Operating margins continue to expand in the first half up 13 basis points, reflecting our continuing work on productivity, net revenue management, and the mitigation of cost inflation. Cathy will talk more about this later. Our free cash flow remains consistent at £966 million, reflecting our continued focus. Pre-exceptional earnings per share grew 4.2%, mainly driven by organic operating profit growth. we have again increased the interim dividend by 5%, and we returned 1.1 billion pounds to shareholders in the first half through our capital return program via share buyback. Our strategy is to be a reliable compounder of growth, creating a virtuous circle of consistent top-line performance, margin expansion, and increased investment in our brands. This relentless, focused and disciplined execution of our strategy has delivered consistent performance since fiscal 2017. Once again, we've delivered mid-single-digit organic net sales growth in line with our medium-term guidance. Our embedded culture of everyday efficiency is continuing to enable increased investment behind our brands. We have increased marketing investment by 30 basis points over the past three years and 25 basis points in this half with the goal of fueling long-term sustainable growth. At the same time, we continued to expand our operating margins just shy of 200 basis points over the past three years and another 13 basis points in this half, largely driven by overhead productivity initiatives. We also continue to deliver solid free cash flow. We have an active and disciplined approach to maximizing value for shareholders. We're continuously evaluating and evolving our portfolio. We have acquired a number of companies and brands, notably Don Julio, United Spirits, and Casamigos, as well as increasing our shareholding in Shui Jing Fang. We believe that our incubator Distil Ventures ensures that we're well-positioned to capture new brands and align to emerging consumer trends. A good example is the majority stake we acquired last August in Seedlip, further developing our position in the non-AL category. We've also divested several assets, including the portfolio of 19 brands in the US. We continue to generate and return cash to shareholders and have delivered consistent dividend growth of 5% over the last five years. And while our total shareholder return has been slightly down over the past six months, our performance over the past five and ten years has been in the top quartile of our peer group. Let me now hand over to Cathy to go more into the details around our financials.

Thank you, Ivan, and good morning, everyone. We've delivered another consistent set of results in the first half of fiscal 20, and our full-year expectations continue to be in line with our medium-term guidance on both top line and profit growth. Let me start with a recap of some of the highlights for the first half that Ivan's already talked you through. Organic net sales grew 4.2%, with 0.2% organic volume growth and 4% positive price mix. Organic operating margin increased 13 basis points. Free cash flow at 966 million pounds reflects consistent delivery despite being lower than last year, largely due to one-off tax payments. Pre-exceptional earnings per share grew 4.2% to 80.2 pence, mainly driven by organic operating profit growth. Return on invested capital at 17.5% was down 33 basis points. Organic operating profit growth was offset by the divestiture of a portfolio of 19 brands to Sazerac last year, increases in capex, higher tax payments on increased profit, and also the impact of IFRS 16, which negatively impacted ROIC by 20 basis points in the period. We returned 1.1 billion pounds to shareholders through share buybacks in the first half against the total capital return program of up to 4.5 billion pounds over the three years from fiscal 20 to fiscal 22. Total shareholder return was down 4% over the past six months, affected in part by foreign exchange volatility. However, as Ivan mentioned, both the five-year and 10-year TSR compound average growth was up 15%, which is top quartile performance within our peer group. Reported net sales were up 4.2%, driven by organic growth with a positive impact of foreign exchange being offset by the negative impact from the disposal of 19 brands. Organic net sales growth at 4.2% was primarily driven by strong price mix of 4%, as volume was broadly flat. Growth was broad-based across regions and categories. There was continued momentum in price mix driven by premiumization, improved capabilities in net revenue management, and sustainable innovation launched in prior years, including Crown Royal Regal Apple and Tangeray Flor de Sevilla. Net sales growth continued across key categories apart from vodka. Scotch net sales were flat as growth in malts and Buchanans was offset by Johnny Walker's softening due to challenging trading conditions in Mexico and travel retail and political and economic disruptions in Peru and Chile, which are all big Scotch markets. Outside of these specific markets, Scotch performance was strong, growing mid-single digit. Vodka was down 1% driven by U.S. spirits. Outside of North America, vodka was up 3%, with growth in every region driven largely by Mexico, Kenya, and Australia. In U.S. spirits, vodka was down 5%, driven by declines in Ciroc and Kettle One. Canadian whiskey net sales were up 11%, driven by Crown Royal, which continued to gain share, supported by the limited edition Crown Royal Peach, as well as Crown Royal Regal Apple, which is in its sixth year since launch and delivered double-digit net sales growth. In U.S. whiskey, growth was driven by Bullitt, with net sales up 4% in U.S. spirits. Rum returned to growth with net sales up 2%, largely driven by Captain Morgan's double-digit growth across Europe. In liqueurs, net sales increased 7%, with growth in Baileys across all regions except Latin American and Caribbean. Performance was driven by our strategy to create year-round occasions for consumers to treat themselves with Baileys. Net sales in IMFL whiskey were up 3%, driven by McDowell's performance in India. In gin, net sales were up 7%, with growth broad-based across every region. Tangeray continues to deliver double-digit growth, driven by Brazil and South Africa, where the brand is recruiting in the early evening occasion. In tequila, net sales increased 31%, driven by Don Julio, which in U.S. spirits in Mexico grew double-digit and continues to gain share. Casamigos in U.S. spirits also grew strongly, with improved distribution coverage as well as rate of sale. Beer net sales were up 2%, driven by Africa, which grew 5%. Senator Kegg and Kenya grew double digits. Guinness was up 1.5%, driven by Europe and North America, supported by the continued growth of both Guinness Draft and Open Gate Brewery brands, respectively. Global giants were up 1%, with all brands in growth except Johnny Walker, which was the brand most impacted by the slowdown in Mexico, travel retail, and the market disruptions in Peru and Chile. Across all other markets, Johnny Walker grew roughly 3.5%. Net sales of local stars increased 8%, driven by strong growth in Crown Royal in the U.S., Chinese White Spirits, and Buchanans in Columbia. This was partially offset by continued decline in Windsor in South Korea and J&B in Europe. In reserve, net sales were up 11%, driven by Don Julio, Casamigos, Chinese White Spirits, Malts, and Johnny Walker's Super Deluxe. Reported operating profit before exceptional items increased 2% as organic growth was partially offset by disposals and exchange. Organic operating profit, which excludes exchange and acquisitions and disposals, increased 4.6%, with organic operating margin up 13 basis points. Reported operating margin, excluding exceptional items, decreased 74 basis points as disposals and exchange impacts offset the organic growth. Organic operating margin expanded 13 basis points in the half, driven by overhead efficiencies and positive items and other income. Gross margin declined 65 basis points in the half as we lapped a strong first half in fiscal 19 when gross margin was up 50 basis points. While price mix continues to be strong, cost of goods sold inflation and flat volumes in the half erode at gross margin gains. We experienced upward inflationary pressure across our commodity costs, particularly base neutral spirits in India, agave, and glass globally. Our marketing spend was up 6% in the half, ahead of net sales, driving a 25 basis point higher marketing investment rate, as we continue to seek to invest behind marketing initiatives where we see strong returns and in attractive growth categories. Other operating items delivered 103 basis points of margin improvements, largely as a result of overhead everyday efficiency initiatives. I'm pleased with the progress that we've made across all of our productivity work streams, and how this work continued to contribute to our organic margin expansion, investment in the business, and driving simplification in process and speed in decision making. Cash delivery continues to be consistently solid, with free cash flow at about a billion pounds this half, despite over 300 million pounds in higher tax payments, primarily driven by one-off tax settlements and timing of payments. We expect both of these tax items to impact free cash flow delivery in the full year. Interest payments were higher driven by an increased debt balance as a result of the share buyback execution and higher interest on tax settlements. Net capex increased 64 million pounds versus last year as we increase investment in Scotland to transform our Scotch whisky visitor experiences and reopen the Port Ellen and Brora distilleries. As I look to the full year, fiscal 20, I expect net capex of between 700 and 750 million pounds, a slight increase on previous guidance given we're tracking ahead on implementation of some IT projects. Our disciplined approach to capital structure strategy remains unchanged, anchored by our leverage policy, which targets a leverage ratio range between 2.5 to 3 times adjusted net debt to EBITDA. Our priority remains to invest in the business to deliver sustainable and efficient organic growth, and to generate value through acquisitions that further strengthen our exposure to fast-growing categories and occasions. We continue to review our portfolio to ensure that we allocate resources behind opportunities that can maximize shareholder value. We maintain a clear dividend policy to target dividend cover of 1.8 to 2.2 times, and we close the fiscal 2019 at roughly 1.9 times. Today, we have announced an interim dividend of 27.4 pence per share. This is an increase of 5% from last year, and it's in line with our guidance of mid-single digit increases. When we have excess cash, we've been clear we will seek to return this to shareholders. The key metric we consider in determining this is our leverage ratio. We opened fiscal 20 with a leverage ratio of 2.5 times, and we've now closed the first half at 2.8 times within our target range. As we announced back in July over fiscal 20 to fiscal 22, we expect to return up to 4.5 billion pounds to shareholders to be determined by the most appropriate mechanic via share buybacks or special dividends, depending on market conditions. In the first half, we have returned 1.1 billion pounds to shareholders through share buyback. Average net debt increased by approximately 2 billion pounds year on year, driven primarily by share buyback. Our effective interest rate was 2.4% for the first half, consistent with prior year as we continue to drive efficient funding of new borrowing and refinancing of maturing debt. For fiscal 20, I expect our effective interest rate to be broadly in line with fiscal 19 based on prevailing market conditions. Other finance charges were broadly in line with last year for the first half. For the full year, I expect other finance charges to be slightly ahead of last year as we lap some one-off benefit from the comparative period. Moving now to foreign exchange. Favorable exchange rate impact on net sales in the first half has been driven by strengthening of the U.S. dollar and Indian rupee, partially offset by the weakening euro compared to the prior year period. As I look to the full year using the rates presented here, exchange is expected to adversely impact net sales by about 110 million pounds and operating profit by about 40 million pounds. Earnings per share before exceptional items increased by 4.2%. Organic operating profit growth and the impact of the share buyback more than offset the divestiture of a portfolio of 19 brands to Sazerac and higher tax expense driven mainly by increased operating profit. Our tax rate before exceptional items was 21.6% in line with our guidance. Our expectation for the full year remains the same, that our tax rate before exceptional items will be between 21 and 22 percent. Non-controlling interest had a positive impact on EPS as a result of the lower profit in our listed subsidiaries. The execution of share buyback reduced the weighted average number of shares and had a positive impact on EPS. These are another set of consistent good results with broad-based growth across regions and categories. The results reflect the resilience in our business. We've seen increased levels of volatility within this half in India, LAC, and travel retail. However, organic net sales growth continued to remain within the mid-single-digit range that we're targeting for the medium term. For the full fiscal year, I expect organic net sales growth to be towards the lower end of our 4% to 6% medium-term guidance range. We continue to expect organic operating profit growth to be roughly one percentage point ahead of net sales, again, consistent with our medium-term guidance. However, I would note that we would not be immune from significant changes to global trade policy, as well as the evolving coronavirus situation in China, and we continue to monitor both closely. Regarding China, there'll be an impact on this year's performance. However, at this stage, we're unsure of the scale. And back to you, Ivan.

Thank you, Cathy. These results reflect the consistent progress we've made against our ambition to be one of the best performing and most trusted and respected consumer product companies in the world. We believe achieving our ambition requires consistent mid-single-digit top-line growth, steady margin expansion, and strong cash flows year after year. Let me now share some examples of some great work we're doing against four of our evolved priorities. To sustain quality growth, invest smartly, champion inclusion and diversity, and pioneer grain-to-glass sustainability. Sustainable growth is all about ensuring the right balance of price, mix, and volume over time, building brand equity, driving sustainable innovation, strengthening the big brands of today, and seeding those of tomorrow. And it's about a sellout-focused route to consumer. Let me share some examples across a market, brand, and category of how we are sustaining quality growth. Our businesses across Greater China are continuing to perform very strongly, with combined net sales up 24%. While we saw some benefit from the earlier timing of the Chinese New Year, the main driver has been the consistent execution of our strategy in this attractive market. We are the only international spirits company with a meaningful presence in the growing Chinese white spirits category. Shui Jing Fang grew net sales 26%, gaining market share, particularly in the rapidly growing super premium segment. Performance was supported by continued route to market expansion, increased marketing investment, and the development of premium innovations. Across Greater China, we continue to build the Scotch category through initiatives such as building whisky boutiques, scale deployment of the Diageo Whisky Academy, banqueting and cultural partnerships, building our prestige position, as well as strengthening our route to consumer. Scotch continues to grow double-digit, up 19% in the half, with particularly strong performance from Scotch malts and Johnny Walker Super Deluxe variants. Our prestige Scotch business continues to grow double-digit, strengthening our quality credentials and driving aspiration. We saw continued strong performance from Scotch malt whiskey, the Singleton, as well as the Johnny Walker Blue Label Ghost and Rare and Special Release series. Taiwan performance continued to strengthen with particularly strong performance from the premium end of its portfolio, including Scotch malts. Johnny Walker maintained its leadership position. And finally, Zhangxi Ji is our innovative new-to-world whiskey crafted by master blenders and distillers from Scotland and China for the meal occasion. Although still early days, we look forward to seeing this brand recruit new Chinese consumers into whiskey. Our iconic Canadian whiskey brand, Crown Royal, our most valuable brand in North America, continued its strong growth. Net sales grew 11% in the first half, once again outperforming the category. The brand benefited from its distinctive purpose-driven marketing, which was up-weighted in fiscal 19, and is driving strong brand equity. Innovation remains an important driver of performance. Crown Royal Regal Apple, now in its sixth year, is continuing to grow double digit, recruiting new consumers and recruiting in new occasions. Limited time offerings such as Crown Royal Peach have further contributed to growth and to the vibrancy of the brand. Driving a positive social impact is at the heart of Crown Royal and fits perfectly with the brand's purpose. Our Drink in Moderation message via the Crown Royal Water Break is now in its third year. This encourages American football fans to drink water during game day, whether in bars, at home, or in the stadium. We also ran TV ads across the U.S. during televised NFL games and distributed water. We also partnered with NFL teams and former legends to spread the message. Our purple bag project continued with the iconic Crown Royal bag used as a way to deliver essentials to military personnel stationed overseas. We are closing in on our goal to deliver 1 million care bags by the end of 2020. Beer, 15% of the AGO's net sales, grew 2.5% in the first half. with strong performance from Senator, Serengeti, and Rockshaw, which all grew double digit. Total Guinness was up 1.5%, with strong growth of 6% in GB, our largest market, where Guinness gained share driven by strong on-trade execution and brand experiences, as well as increased rugby activation. One in every 10 pints served in London is now a Guinness. Growth was also strong in the US, up 5%, and in Nigeria, which grew 8%, this was supported by the launch of Guinness Extra Smooth, as well as successful promotional activity around our partnership with the English Premier League. Overall, Guinness brand growth was softened by a one-off supply challenge in Cameroon. Investing smartly is about ensuring that we use our increased return on investment transparency and accountability culture to make the right investments in brands, capabilities, tools, and CapEx to drive stronger performance. We are continuing to build best-in-class capabilities via data analytic tools such as Catalyst. This increases transparency of our investments and further strengthens our effectiveness culture. This tool, which becomes stronger and more granular with use, gives us the confidence to invest for the long-term growth as well as optimizing short-term performance. For example, in Europe, where we are now in our third year of using Catalyst, it has enabled us to shift our spend on Smirnoff to a CERB-related creative platform to shorter TV copy lengths, as well as improving our use of digital media channels, all driving stronger performance. We have built a suite of tools to enable everyday great execution or edge. These tools provide our sales force with the insights necessary to ensure we have the right brands in the right outlets in the right way. An example of one of these tools is TRAX in the US. This tool uses digital image recognition to measure on-shelf availability, assortment and shelf position, further strengthening our performance. Increased transparency on the effectiveness of our investments further reinforces our performance culture and enables us to invest to drive the best returns. Smart investment is also about investing capex to support growth with good returns. We're continuing to invest and expand our brand homes around the world. This follows the success of the Guinness Storehouse in Dublin to provide consumers with the opportunity to engage in a more material way with our brands. This calendar year, we are opening, amongst others, our flagship Johnny Walker experience in Edinburgh, marking the brand's 200th anniversary. We are also upgrading our visitor centres across the four corners of Scotland in our Glenkinchie, Kleinleash, Kalila and Cardew distilleries. And we are continuing the environmental investment we announced last year across 11 of our African brewing sites to deliver new solar energy, biomass power and water recovery processes to improve the long-term sustainability of our African supply chain. In order to achieve our ambition, we need the perfect blend of financial performance and the core elements of our environmental, social, and governance agenda. I am very proud of the inclusive and diverse culture we are creating at Diageo, which is core to our purpose of celebrating life every day, everywhere. In 2019, I was proud to announce our ambitious new family leave policy, Globally, all women at the RGO are entitled to six months fully paid maternity leave. And in most places, including our biggest markets of Europe and the US, new parents, irrespective of gender, are entitled to six months parental leave. Championing inclusion and diversity is fundamental to driving engagement and for achieving the best possible outcomes for our business. We view diversity in the broadest possible sense, from gender, age, ethnicity, and sexuality to social class, education, experience, and thinking style. We initially focused on gender, and I'm pleased to say we've made significant progress. Today, 44% of the AGIO's board and 35% of the AGIO's executive committee are women, and we are ranked sixth in the FTSE female board report for women on boards and in leadership. We are also making rapid progress on our goal for women to make up 40% of our global senior leadership team by 2025. And this progress has been recognized externally with Diageo ranked the second most diverse and inclusive workplace globally by the Refinitiv Diversity and Inclusion Index and the number one company for gender equality globally by Equili. We have made strong progress on gender, but our work in many broader areas of inclusion and diversity is just beginning. I am pleased to see our commitment also being championed by our brands. Globally, our marketeers are focused on progressive gender portrayal in all our creative work, a stance that is leading to better advertising while also helping to support diversity within the creative industries. While there is more to do, the RGO is playing a significant role in shaping market-leading policies and practices. And we will continue to champion inclusion and diversity to create the best possible culture, attract and retain the best talent, and ensure all of our people can thrive. Another of the areas in which we are focused is pioneering grain-to-glass sustainability. Grain-to-glass sustainability is about ensuring we preserve the natural resources on which our long-term success depends and positively impact the communities where we operate. Diageo was a pioneer in setting an absolute carbon reduction target, aiming to reduce our emissions by 50% by the end of fiscal 20 versus the 2007 baseline, despite growing volumes over the same period. This bold move has helped us to spur innovation and new approaches to reduce our environmental impact, and we have delivered a 45% cumulative reduction in our emissions to date, with a 20% reduction in the past four years. Water efficiency has also improved with a 44% absolute reduction since 2007 and a particular focus on water stressed areas. We are on track to deliver our ambitious targets in these two important areas and are fully focused on driving progress on the rest of our fiscal 20 targets. In addition, we are looking towards 2030 and expect to announce our new targets in the summer. Now, let me update you on our three focus areas, Scotch, US Spirits and India. Our long-term strategy in Scotch remains unchanged, with core brands and innovation delivering significant growth in the past two years. Overall net sales were flat in the first half due to some specific challenges, primarily disruptions in Mexico, travel retail in Peru and Chile. These adversely impacted Johnny Walker Black Label and Johnny Walker Red Label in particular. Overall, the brand remains strong with the Johnny Walker Reserve portfolio continuing its rapid growth with particularly strong performance from Asia Pacific. We are looking forward to celebrating Johnny Walker's upcoming 200th anniversary with the opening of the new Johnny Walker home in Edinburgh, celebratory packaging and special releases. Innovation maintained its strong contribution to growth, driven by the Johnny Walker Game of Thrones limited editions, A Song of Ice and A Song of Fire, and the Game of Thrones Single Malt Scotch Whiskey Collection. Buchanan's net sales continued to gain momentum and were up 9% with good growth in both the US and Latin America following increased investment over the past two years. Our Scotch malts grew double digit in all regions with strong performance from Moortlark, Lagavulin and the Singleton. Primary Scotch brands remained flat. Growth in black and white in VAT69 was offset by headwinds on Bells and other local primary brands. In other Scotch, J&B slowed its decline in Iberia, and Windsor continues to decline in Korea, driven by changing consumer trends. Now turning to our second focus area, US spirits. This remains a very attractive market where we are well positioned due to our competitive advantage, executional capabilities, and innovation. Our U.S. Spirits business continues to build momentum with continued premiumization and strong price mix improvements. Growth was further strengthened by last year's up-weighted marketing investment, which has been continued this fiscal year. We continue to use Catalyst, our data analytics tool, to guide our marketing investment decisions. And we have our everyday great execution tools to strengthen our route to consumer. A number of areas grew strongly, including Crown Royal, Don Julio, and Casamigos, all up double digit, and our innovation performance remains strong. This growth offset softer performance in vodka, where performance remains challenged. Overall, in this fiscal half, we grew broadly in line with the U.S. spirits market. Our strong performance in the growing Canadian whiskey and tequila categories continued with Crown Royal, Don Julio, and Casamigos all gaining share. Johnny Walker continued to gain category share, but at a slower rate. Our latest innovation, Johnny Walker Game of Thrones Limited Editions, A Song of Ice and A Song of Fire, has performed strongly, but is lapping last year's highly successful White Walker by Johnny Walker. Buchanan's also continued to grow share. Smirnoff and Serac category share continued to decline. However, Kettle One continued to gain category share. Captain Morgan continues to lag the category. We've up-weighted marketing investment. In November, we launched a TV campaign focusing on the simple serve message and behind our partnership with Major League Soccer ahead of the 2020 season. The current economic slowdown in India is softening category growth. Against this background, total net sales grew 2%. Overall performance was impacted by the decline in McDowell's No. 1 rum and Old Tavern whiskey, which both play in the popular segment of the market. In Prestige and above, we grew net sales by 5.1%, driven by strong growth in Scotch. johnny walker and black and white both grew double digit and mcdowell's number one was strengthened by the continued success of its platinum range we had some temporary supply chain disruption which has now been resolved as well as liquidity challenges in some key scotch markets which slowed growth in this half High inflationary COGS, particularly on raw materials, put significant pressure on gross margin. However, we managed to significantly reduce the impact on operating profit through continued focus on net revenue management, productivity initiatives, as well as tight overhead management. We remain very confident in our long-term strategy in this market. Once again, we have delivered another good, consistent set of results in the first half through the ongoing focus on all six of our execution priorities. Organic net sales growth was broad-based across regions and categories, demonstrating our strengthened ability to withstand volatility and still deliver our medium-term guidance. We continue to build our business in the right way with increased investment to drive sustainable growth while expanding organic operating margins and delivering strong cash flow. We remain confident in our long-term performance and expect to continue to deliver against our fiscal 20 to 22 medium term guidance of mid single digit organic net sales growth in the range of four to 6%. We also expect to grow organic operating profit ahead of net sales in the range of 5% to 7% over the same period. With the consumer at the heart of the business and the greater agility and discipline in the execution of our strategy, we will continue to grow the RGO in a