Diageo plc (NYSE:DEO) Q2 2020 Earnings Conference Call - Final Transcript

Jan 30, 2020 • 04:30 am ET

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Diageo plc (NYSE:DEO) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good day, and welcome to the Diageo Interim Results Investor Q&A Call. [Operator Instructions] Your call today will be hosted by Diageo's CEO, Ivan, and CFO, Kathy. [Operator Instructions] We are now ready to start the call. Ivan, please go ahead.

Executive
Ivan Menezes

Thank you. Hi everyone. Kathy and I are in London, and welcome to this morning's post-results investor call. I'm pleased to share with you another set of good consistent first half results with broad-based organic growth across regions and categories. As you know, we are lapping last year's very strong first half and we have faced volatility in specific markets, and therefore, pleased that despite this, our performance is in line with our medium-term guidance of 4% to 6% organic sales growth, demonstrating our increased resilience as a business. Our margin expansion continues even after three strong years, despite increased COGS inflation in this half. And this is a result of our continued focus on premiumization and driving everyday efficiencies.

I'm particularly pleased with the strong growth in the US, our largest market, as well as good growth in Africa and Asia-Pacific, which more than offset challenges in India, Latin America and the Caribbean, and Travel Retail. Across categories, tequila, Canadian whiskey and Chinese white spirits, all grew double-digit, balancing softness in our scotch performance. We remain confident in the underlying performance of our scotch portfolio as the challenges were quite localized to a few specific markets. We made significant improvements in our A&P effectiveness through leveraging our proprietary tool, Catalyst, and our strengthened consumer insight-led marketing campaigns. This gives us the confidence to continue to grow A&P ahead of sales. We're seeing tangible results from this up-weight in investment. Innovation remains a key growth driver for us, as we recruit new consumers and occasions to our brands, as evidenced by the sustained growth of variants such as Crown Royal Regal Apple.

In the context of the market-specific challenges we saw in H1 and continue to face, I now expect the full year organic net sales growth to be towards the lower end of our medium-term guidance of 4% to 6%. I continue to expect organic operating profit growth to be roughly 1 point ahead of net sales for the full year. However, we won't be immune from any significant changes to global trade policy.

On the evolving coronavirus situation in China, we continue to monitor this very closely. Our primary concern is the welfare of our employees and ensuring they have all the available information and support as the situation evolves. There will be an impact on performance. However, it's too early to be able to quantify this at this point in time.

So we remain focused on sustainably building our business through the disciplined execution of strategy to deliver consistent and resilient performance. And with that, we'll open up the line for your questions to Kathy and myself. Thank you.