January 25, 2018

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Good morning everyone• I am pleased to share another strong set of results which demonstrate the progress we are making towards our ambition to be one of the best performing, most trusted and respected consumer products companies in the world.• Let me start by thanking all Diageo employees for their role in making this happen.We are doing this by making progress against our strategy to increase our spirits participation in emerging markets and support premiumisation in developed markets, through the effective execution of our six priorities.• The consistency of the performance that we are delivering and the momentum we have in all four measures of our progress, demonstrates that we are a stronger company as a result of the changes made over the past few years.• We are more consumer centric, more efficient and more agile, which is enabling us to deliver consistent

performance, while managing challenging conditions in some of our markets • Let me share the highlights of our first half performance with you.

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• Organic net sales grew 4.2% driven by volume growth and strong price mix with broad based growth across categories and regions.

• Organic operating margin expanded by 81bps with our productivity work enabling an up-weight in marketing investment and margin expansion.

• We delivered another half of strong free cash flow, broadly consistent with last year.• Eps pre-exceptionals is up 9.4% driven by organic growth and lower finance charges.• We returned about 800 million pounds to share holders in the first half through share buy-back and increased

the interim dividend by 5%.

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• We are delivering consistent performance through the rigorous execution of our six priorities.• We have delivered another half of topline growth above 4% in line with our medium term guidance. The

growth is broad based across regions and categories, reflecting the breadth of our portfolio and geographic reach.

• The consistency of our performance is also coming through in organic operating margin improvement, further expanding our margin by 81 bps in the half.

• And we have delivered four consecutive years of strong free cash flow performance, which we have sustained in the half.

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• We continue to see solid growth in on our three focus areas.• In scotch, momentum on Johnnie Walker, our flagship scotch brand and primary scotch has continued while

performance on some of our other scotch brands was impacted by challenging conditions in a few markets.• In US Spirits, where all our key brands except vodka have continued category share gains, growth was a bit

slower in the first half lapping a strong first half innovation programme in the prior year.• In India, net sales grew 2%, an improvement versus the second half of last year, which was broadly flat.• While I am pleased with this performance, I will update you later on the work we are doing to further improve

upon this.

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• The broad based growth across the business and the three focus areas demonstrates the consistent and effective execution of our strategy through our six execution priorities.

• We have become a reliable compounder of growth, using our brand portfolio and geographic footprint, coupled with our agility, to deliver consistent top line performance.

• Our productivity programme is on track and has enabled us to up-weight investment in our brands and continue to expand margins.

• And we continue to deliver strong cash flow.• This reinforces our confidence in delivering our guidance for mid-single digit top line growth and 175bps of

organic operating margin improvement, in the three years ending fiscal 2019.• And now let me hand over to Kathy to cover these results in more detail.

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• Thank you Ivan and good morning everyone.• We have delivered another strong set of results, demonstrating continuing progress against the measures we

track to deliver efficient growth and value creation.• Organic net sales growth was up 4.2%, driven by volume growth of 1.8% and positive price/mix.• Organic operating margin was up 81bps supported by momentum behind our productivity activities. This was

better than expected by 35bps as we were able to pull forward employment benefit savings from the second to the first half.

• This half we delivered another strong performance on cash. Free cash flow was about £1bn, broadly consistent with last year despite a one-off payment of £107m made to HMRC for the preliminary UK tax assessment that we disclosed last year, which was partially offset by working capital efficiencies.

• Pre-exceptional eps grew 9.4%, driven by organic operating profit growth and improved finance charges.• ROIC improvement was primarily driven by operating profit growth.• Total shareholder return was up 22% over the last six months which builds on the 12% increase we achieved

for the full year in fiscal 2017.• Overall this is another strong set of results.• Let me take you through the numbers in more detail.

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• Reported sales were up just under 2% as organic growth was partially offset by unfavourable exchange. This arose predominantly from the strengthening of the pound sterling versus the US Dollar as well as the weakening Lira in Turkey and the Naira in Nigeria.

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• Organic net sales growth was driven by 1.8% volume growth and 2.4% positive price/mix.• We saw volume growth across all regions except for Asia Pacific which continues to be impacted by the short

term volatility as well as continuing weakness in the Popular category in India.• Pricing remains muted in our developed markets and is overall broadly in line with fiscal 2017. • Net sales growth was slightly higher than expected in the half, primarily driven by particularly strong growth

in Chinese White Spirits despite the later timing of Chinese New Year.

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• All regions delivered top line organic growth, demonstrating the benefit of the breadth and strength of our portfolio with truly global geographic reach and broad based participation across most categories and price points.

• In North America, US Spirits net sales were up 2.9% in the half, lapping a strong first half innovation programme in the prior year. Pricing continues to be muted with net sales being driven by volume and mix. US Spirits saw growth across all categories except Vodka. Don Julio performed particularly well in the half and continues to take share in the Tequila category. North American whiskey grew, albeit at a slower pace than last year due to lapping the launch of Crown Royal Vanilla. Other good performances came from Baileys and Captain Morgan, both gaining share in their respective categories. In Vodka, performance continues to be subdued. The main drivers here are Ketel One vodka and Cîroc while Smirnoff declined at a slower rate than last full year.

• Europe and Turkey continue to deliver consistently strong performance with this half mainly attributable to volume gains. Price/mix was largely due to the positive impact of price in Turkey being offset by negative price/mix from Gordon’s and Baileys in Europe.

• Africa performance was mixed with double digit growth in Nigeria being partially offset by weakness in Africa Regional Markets and South Africa. East Africa net sales were flat reflecting the impact from the uncertainty following the presidential election in Kenya. Negative price/mix was primarily driven by the impact of positive price in Nigeria being more than offset by faster growth in Mainstream Spirits in East Africa and Nigeria, as well as the competitive environment in South Africa.

• Latin America and Caribbean net sales were up 7% driven mainly by strong performance in PUB and Mexico. The negative price/mix in the region primarily resulted from expansion of primary scotch brands. We delivered strong double digit growth in primary scotch in PUB, Mexico and Colombia. This was offset by a decline in Old Parr in Colombia, due to the impact of the new ad valorem tax regulations.

• In Asia Pacific lower volumes were caused mainly by India. As I mentioned, the Popular segment there is in decline. Additionally we saw volatility impacts from the Supreme Court ruling, prohibiting the sale of alcohol in certain outlets near certain state highways, as well as route to market changes in certain states. These negative impacts were partially offset by lapping demonetisation in the prior year. Positive price/mix, in the region, was driven by scotch growth at just under 5% across the region, another strong performance from Chinese White Spirits and India.

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• We continued to see broad based organic growth across key categories except for Vodka.• Our largest category scotch was up 3% with broad based growth across all regions except Africa which was

impacted by challenges within our third party distributor network in Cameroon. Johnnie Walker delivered a strong performance with net sales up 7% as well as our primary scotch brands where net sales increased 8% largely driven by Black & White in Latin America and Caribbean and Asia Pacific. Elsewhere Windsor net sales declined double digit as it continued to suffer from the category decline in Korea and Old Parr performance was impacted by the tax regulation changes in Colombia that I mentioned earlier. Net sales in scotch Malts were up 3% with growth in North America, Mainland China, South East Asia and Travel Retail Asia and Middle East partially offset by weakness of The Singleton in Taiwan.

• The decline in vodka slowed compared to our last fiscal year. Challenges in the US are driving overall global performance. Outside of the US vodka was up 4%, compared to up 1% in fiscal 2017.

• Net sales in North American Whisk(e)y were up 4% . In the US, Crown Royal continues to gain category share in US spirits albeit with net sales growth slowing as we lapped the launch of Crown Royal Vanilla in the first half of fiscal 2017. In American whiskey, Bulleit continues to drive growth and gain category share in both North America and Europe.

• In Rum, net sales were up 5% with broad based growth across the regions. Captain Morgan, up 6%, and Zacapa, up 21%, were the key drivers in our biggest markets US Spirits and Europe.

• Liqueurs grew 5% driven mainly by Baileys in US Spirits where the brand grew double digit benefitting from the new media campaign and increased investment in sampling activities.

• Indian made whisky was up just 1% with overall net sales negatively impacted by the headwinds I covered previously. We continue to see growth from McDowell’s No.1 and Signature within the Prestige and Above segment which was up 6% partially offset by declines in the Popular segment.

• Gin net sales were up 16%. Growth was strong and broad based across all regions. Tanqueray and Gordon’s were both up double digit fuelled by strong performance in Europe.

• Tequila delivered an impressive performance driven by Don Julio in both of its biggest markets, US Spirits and Mexico.

• In Beer, net sales performance improved, up 4%. Growth was driven by Guinness in Europe and Africa, and by Dubic malt in Nigeria. This more than offset declines in Senator, reflecting the recent period of political uncertainty surrounding the presidential election in Kenya.

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• Net sales growth was broad based across our portfolio of brands which illustrates its strength. • Global giants had a strong half and were up 5%. Growth was broad based across all brands with the exception

of Smirnoff whose net sales were down 1% driven by the US, and also South Africa where we saw increased competitive pressure in the market.

• Local stars were up 5% led by the strong performance delivered in China with Chinese White Spirits as well as Crown Royal in the US.

• Reserve performance was up double digit overall in the half with Chinese White Spirits, Don Julio and Johnnie Walker being the biggest contributors to the growth.

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• Reported operating profit before exceptional items was up just over 6% with good organic growth, offset by a modest impact from unfavourable exchange.

• Organic operating profit grew 6.7%.

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• Reported operating margin excluding exceptional items increased 138bps driven mainly by organic operating margin improvements.

• In addition we saw some improvement from the lower relative negative impact of exchange on operating profit versus net sales due to our hedging programme which delays the timing of the exchange impact on profit.

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• On an organic basis operating margin expanded 81bps. • We are pleased with how this improvement was delivered, with our productivity work supporting the increase

in marketing with much of the reductions in overhead still flowing through to the bottom line. • Let’s dig into this in a bit more detail, I’ll start with marketing.

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• As we indicated last year, we have significantly increased our investment in growth behind marketing, up 7% in the half. We are confident in our improving capability to invest in effective marketing activity and we are delivering more improved marketing efficiencies. These efficiencies were broad based across regions and were delivered by continuing to work with our agencies and our suppliers, more efficiently and effectively. The savings span across most marketing activities including media, experiential, and right through to point of sale.

• Overall, our marketing investment rate increased by over 40bps with increased investment rates in all regions led by the US where our spirits business investment rate was up 71bps. Given scotch is a key area of focus, we increased the investment rates here with Johnnie Walker a big beneficiary of the higher marketing spend.

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• I would like to come back to the enablers behind our margin expansion. Gross margin was broadly flat in the half with productivity savings and positive price/mix offsetting cost of goods inflation and some smaller one-off costs like the impact on rum production from the hurricanes that occurred in the Caribbean.

• Reduced overheads were the big driver of our margin improvement. Our productivity initiatives focus on tight management of every line item within overheads and our actions to reduce these costs delivered strongly in this half. We saw benefit coming through from our work on organisational effectiveness and also the benefits from the second year of zero based budgeting. These positive effects drove almost all of the 122bps in other operating items.

• Operating margins were higher than expected at the time of the AGM trading statement largely as a result of the acceleration of employment benefit cost savings from the second half into the first half, which positively impacted margin by 35bps. Additionally a bit of the phasing of our A&P reinvestment has moved to the second half.

• Looking to the full year, our expectations for fiscal 18 remain unchanged. We continue to expect organic net sales growth roughly in line with last year and consistent with our mid-term guidance of mid-single digit top line growth. On margin, we expect continued progress toward our goal to deliver 175bps of improvement for the three years ended June 2019, with more of the remaining margin expansion coming through in fiscal 19 as we expect to have less costs to absorb and will get greater benefits from our investments in NRM and marketing catalyst capabilities.

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• Our margin performance and increased investment in marketing has been made possible by embedding a culture of productivity improvement throughout the business.

• Last July we announced an increase in the savings we expect to deliver and I am happy to report that we are on track to meet the bigger goal.

• We have made good progress in each of the five work streams which you can see in our results.• On Net Revenue management, we are building commercial plans in a more systematic way using the

five levers of pricing, promotions, trade terms, formats and mix. Brazil is a good example of how we are using formats as a NRM tool. Small formats enable more accessible price points and extend our access to new consumer occasions. In Brazil we introduced a 250ml PET pack developed for festival events, which typically ban glass packaging. Deploying this new format is driving the penetration of scotch into new occasions. Smaller formats also allow a higher price per ml given the consumer benefit from the fit for purpose size and pack.

• On Marketing I’ve already discussed the benefits we are seeing through continued improvement in efficiency. We are also looking to get our pounds to work harder by driving improved effectiveness enabled by the roll-out of our marketing catalyst tool. We used catalyst to plan and allocate our marketing spend across markets and brands at the beginning of the year. And now marketers are using catalyst in their day to day roles to continuously optimise their spend based on the most current data. It is making a real difference. In India for example, marketing teams have used catalyst to inform decisions on reallocation of McDowell’s No.1 media plan spend by state and have improved rate of return. And on Royal Challenge we identified the opportunity to increase spend and reallocate across our media channels. Together these two changes are estimated to deliver well over £1.5m of value compared to the original plan.

• Moving to supply, we are driving costs of production down through a number of workstreams. Nigeria, as an example, has made most progress in the supply areas we categorise as make and move. In make, we have successfully reduced process waste and improved efficiency in the collection of CO2. In move, we have changed the way we work to cut down the amount of interplant movement between the two production sites.

• Finally, the biggest contributor to our margin improvement this half was from overheads which I’ve already discussed a bit. In addition to the cost savings the changes we are making in our organisational structures make us a simpler, flatter company and enables faster decision making.

• Now lets move on to cash and working capital.

• Cash delivery continues to be strong with Free Cash Flow over £1bn, slightly behind last year with growth in operating profit being offset by a one-off tax payment and increase of maturing stock within working capital.

• Working capital improvements yielded about a 70 basis point reduction in average working capital as a percentage of net sales versus the end of fiscal 17, with improvement across all lines. The favourable year-over-year movement was primarily driven by creditors.

• These gains were offset by a higher rate of growth in maturing stocks to meet future demand for scotch and North American Whisk(e)y.

• Net capex increased £17m versus last year. Looking ahead for the full year, I would now expect our full year Capex spend to be in the range of £500 to £550m.

• Tax payments were £101m higher year-over-year driven by the one-off payment made to HMRC in August. • Interest payments were lower than last year by £21m mainly as a result of the maturity of higher coupon

longer term USD bonds and the more efficient use of commercial paper.

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• Average net debt decreased by approximately £250m as continued strong free cash flow was partially offset by the execution of the share buy back programme and the closing of the Casamigos acquisition.

• Our effective interest rate decreased 50bps to 3.0% driven by a very efficient debt refinancing where higher coupon bonds were replaced with bonds with more favourable interest rates as well as the higher use of commercial paper.

• For the full year I expect our effective interest rate to remain around 3.0% as we continue to see the benefit from the refinancing with some risk of floating rates rising.

• Other finance charges were broadly the same as last year, in line with our expectations, as lower pension charges offset the increased valuation of the Zacapa option. I expect other finance charges for the full year to be roughly in line with fiscal 2017.

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• We have a transparent and disciplined approach to our capital structure and to how we prioritize the allocation of capital to maximize value for shareholders.

• The key principle underpinning the current structure is the commitment to a leverage range of 2.5x – 3.0x, which is broadly consistent with maintaining our current A- long term credit rating, and enables both capital efficiency and flexibility through the economic cycle.

• Our number one priority is to invest in the business where we see good returns.• In August, we closed our Casamigos acquisition which strengthens our position in the fast growing super

premium segment of the tequila category in the US. • We have announced an interim dividend of 24.9 pence per share, up 5% from the previous year. We have a

progressive dividend policy and we expect to maintain a mid-single digit increase until we rebuild dividend cover back to our target range of 1.8 to 2.2x. We continue to make progress, with our cover closing in the half at 1.7x.

• At the end of F17 our leverage was well below our policy range with Adjusted Net Debt to EBITDA at 2.0x. As a result of our significantly reduced leverage and confidence in delivering sustainable and consistent cash flow, the board approved a share buy-back programme to return up to £1.5bn of capital back to shareholders.

• We are on track and at the end of December with £760m having been utilised to repurchase 29.5m shares with these shares having been cancelled.

• Our adjusted net debt to EBITDA at end of the first half increased to 2.2x. This planned increase arose from higher adjusted net debt which was up by about £1.3bn, partially offset by increased EBITDA.

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• Moving now to exchange.• Adverse exchange in the first half has been led by the weakening of the US Dollar, the Turkish Lira and the

Naira in Nigeria, impacting net sales by £134 million and operating profit by £15 million. • Using the rates outlined here for the full year, exchange is forecast to adversely impact net sales by roughly

£460 million and operating profit by about £60 million. • There are still a few variables around exchange in fiscal 18 which could affect this forecast. These include any

further movement on the pound versus the US dollar and the euro, and continued volatility in emerging markets. I would note that we are using current spot rates to forecast the translation impact on both revenue and operating profit as well as unhedged transaction exposure.

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• Earnings per share before exceptional items increased 9.4% in the first half. • The organic operating profit growth and lower finance charges, more than offset the negative impact of

exchange and higher tax expense. • Our tax rate before exceptional items reduced from 20.9% to 19.8% in the first half.• Our current expectation is that the tax rate before exceptional items for F18 will be approximately 20%, a 1

percentage point improvement versus our prior guidance. The decrease for fiscal 2018 is principally driven by the headline rate reduction in the US.

• Basic eps increased 36% due to the balance sheet re-measurement of our US deferred tax liabilities as a result of the headline rate reduction, resulting in an exceptional tax credit.

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• So we have delivered a strong start for fiscal 18, building on good results last fiscal and despite facing a number of challenges in some parts of the business.

• This has enabled good progress against our measures of efficient growth and value creation.• We have shown how our productivity work is supporting investment in growth and improved margins.• I am pleased with our progress in this half. I am confident we remain on track to deliver our guidance of mid-

single digit top line growth and 175bps of organic operating margin expansion in the three years ending June 30th 2019.

• And with that I will hand it back to Ivan.

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• Thanks Kathy.• Kathy shared the results on the first two measures that track the progress made against our performance

ambition, efficient growth and value creation. • At our year end results I will update you on our annual employee value survey results.• I shared with you at the end of F17 the progress we have made to become one of the most trusted and

respected consumer products companies in the world.• While I am proud of Diageo’s track record in this area, there is more we can do.• To this end, we have developed ambitious new targets for 2025 for our Alcohol in Society program,

demonstrating our commitment to promoting positive drinking experiences and tackling harmful drinking.

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• By 2025, we will:o Educate 5 million young people, parents and teachers about the dangers of underage drinking by

consolidating Diageo’s efforts behind a global program called SMASHED. It is a theatre based approach, aimed at 12-16 year olds and designed to increase student knowledge about the dangers of alcohol misuse.

o In December we announced that we surpassed a year early our target to collect 5 million pledges, to never drink and drive, by activating ‘Join The Pact’ campaigns in over 40 countries. We will now raise the goal to collect 50 million pledges.

o And we will reach 200 million people with moderation messages from our brands. As an example, in the United States, Crown Royal is embracing the responsibility that comes with our category leadership position, Crown Royal has created the Water B.O.Y.S., who have engaged tens of thousands of fans at football stadiums and sports bars across America – to educate them on moderate drinking, handing out bottled water.

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• Our six priorities underpin the delivery of our strategy.• Disciplined execution of our six priorities across our business is enabling the delivery of consistent

results.• I am going to use our business in Mexico to bring this to life.

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• Deploying our six execution priorities in Mexico over the last few years has created a vibrant business that is delivering consistent growth and share gains.

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• We are seeing strong results with our premium core brands growing double digit in the past few years.• Our marketing focus has evolved significantly, with each brand supported by a purpose driven platform which

is driving recruitment. Great examples include:o Johnnie Walker is connecting with Mexico´s current mood of overcoming all obstacles with our Keep

Walking Mexico & “El Camino es hoy” campaigns.o Buchanan's is focused on strengthening the brand´s status and credential cues with the ‘Choose

Great’ campaign.o We are revitalising Smirnoff by reminding consumers that it is the No. 1 vodka in the world and

activating at music festivals and fairs.

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• Black & White is our flagship primary scotch brand and we have seen great success with it. It is premiumising the primary scotch category and recruiting from the value segment.

• Over the past 4 years we have taken Black & White from regional distribution and awareness to national distribution and awareness.

• In the process we have increased volume to over 8 times and share of primary scotch segment to over 5 times what it was 4 years ago.

• And in the first half, Black & White gained the leadership position in the primary scotch category.

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• We are the leader in the luxury drinks category in Mexico with an almost 50% share.• We have grown the business double digit over the past few years and increased our already high share by

more than 250 bps.• We have done this with a shift from a seeding model with presence in 3 cities to national presence and also

expanded from trend leading accounts in to the broader premium accounts universe.

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• We have a strong innovation agenda aimed at recruiting consumers into spirits aligned with the three global pillars of recruit, re-recruit and disrupt. Innovation now represents over 10% of net sales in Mexico.

• Some examples are:• Don Julio Dos Barricas which is made by ageing Don Julio Reposado in barrels from the House of

Buchanan’s. A great liquid, ensuring we continue to innovate and recruit into the largest category in Mexico.

• Smirnoff X1 Tamarind embodies “Sabor a Mexico”, the flavour of Mexico and is aimed at recruiting from the value segment while bringing vibrancy to the Smirnoff brand. Early results are strong, it has gained 1.2 pps of category share in the first three months of national launch.

• Bell’s which was launched to strengthen our position in the primary scotch segment has gained 90bps of share in the primary scotch segment since launch.

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• Over the past few years, we have developed an advantaged RTC in Mexico and improved distribution and execution through:

o Geographical expansion to more cities.o Increasing called on accounts with additional sales headcount as well as improving call efficiency,

through clearer call objectives and measurement.o Investing in automation of our sales processes to track and audit execution.o And through creating a small dedicated team focused on the tourism business and third spaces.

• We have embedded productivity in the Mexico business to drive out costs to invest in growth. • This has resulted in savings being delivered across the five productivity workstreams.• These savings have been partially invested to fund our scotch and reserve brands focus. • I am very pleased with the progess we have made in Mexico. • It is just one example of brilliant execution of our six priorities delivering our strategy.• We will continue to focus on brilliant execution of the six priorities across our markets to drive consistent

performance delivery.• Before I move on to our three focus areas, let me share with you the progress we have made on our premium

core beer brand, Guinness.

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• Beer accounted for roughly 15% of Diageo’s net sales in the half and is the second largest category for Diageo after scotch.

• Beer net sales grew 4% in the first half, accelerating vs F17, with Guinness our flagship beer brand growing4%, with growth both in Africa and in our developed market footprint in Western Europe and North America.

• In our developed market footprint:o We are reinforcing our premium beer credentials, driving quality & visibility in the on premise and we

have expanded the Guinness portfolio with beers from The Brewers Project.o Guinness draught grew and gained share in GB on premise in the first half. We have seen tremendous

success with Hop House 13 lager in GB and Ireland. Its strong growth and share gains in the lager beer category continued in the first half.

o In the US, we are setting up the Guinness Open Gate Brewery and Barrel House in Maryland, allowing consumers to taste new brews from Guinness. And we recently introduced Hop House 13 lager in Canada.

• In Africa :• We are driving physical availability by getting great quality Guinness in the right outlets at the right

price, served cold and visible.• We are driving consumer engagement through the successful “Made of Black” campaign which links

the consumer interest in football and the English Premier League with the brand purpose.• Outside these core markets we continue to partner with distributors for our Guinness business, these markets

grew 4%.• Let me share with you some examples of our first half execution on Guinness.

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• In GB, Guinness growth continued as we increased investment behind Guinness Draught with a focus on driving improved quality and visibility in the on premise and continued Hop House 13 lager momentum. We increased the reach of our quality accreditation program in the on premise by over 250% in the first half, ensuring great looking, great tasting Guinness pints in more outlets. Hop House 13 lager is now almost 8% of our Guinness business in GB and gained 40bps of lager beer share in the half.

• In the US, we have started brewing our first beers at the test tap room that opened at the new brewery. We also launched our Guinness 200th Anniversary Export Stout to mark the first shipments that went to the US back in 1817.

• In Africa where we are activating against the football occasion, Thierry Henry, was the face of our football activation in Kenya and Nigeria in December. Our Facebook shout-outs reached almost 3 million people and Guinness was the #1 trending topic on Twitter in Kenya on the day of his visit.

• And in Ethiopia, following a successful trial, we launched Guinness nationally in November to a strong response from consumers.

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• Moving to our three focus areas. I am pleased with the continued growth in these three areas. • Let me share with you what we are doing in each. • Starting with scotch.

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• We continued to build on momentum we had on scotch in F17, growing net sales 3%. • This solid performance was delivered while working through headwinds in some of our markets.• Momentum on Johnnie Walker continued, growing 7% with strong growth in all regions except Africa, where

performance was impacted by challenges within the third party distributor network in Cameroon.• Johnnie Walker Black Label grew 8% as we focused on painting the world Johnnie Walker Black and solid

growth in Johnnie Walker Red Label and reserve variants continued.• Buchanan’s growth was slower in the first half in its key regions: North America and Latin America and

Caribbean. In the US, where growth slowed as we cycled a strong depletion performance in the first half of last year, the brand is healthy and gained category share in combined Nielsen and NABCA. In Latin America and Caribbean, performance was impacted due to challenging market conditions in the export channels in CCA, growth slowing in Colombia driven by recent tax increase and price increases in Mexico.

• Of our three biggest regions for scotch malts, we saw performance improve in the biggest region, Europe and Turkey, and continued growth in the North America and Asia Pacific. In Asia Pacific, strong growth in mainland China, South East Asia and Travel Retail was partially offset by weakness in The Singleton due to commercial challenges in Taiwan.

• Primary scotch momentum continued with strong growth on Black & White in Mexico and Brazil. Bell’s grew 3% with strong growth in Russia, Turkey, Thailand and Korea. Black Dog our primary scotch in India was up 9%.

• Other scotch performance softened versus last year as Old Parr declined due to recent tax increase in Colombia and continued declines on Windsor due to scotch category contraction in Korea and a consumer shift to the lower abv non-scotch variants from Windsor.

• Let me now share with you examples of our Johnnie Walker execution in the first half and what we are doing in China to accelerate the future of scotch.

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• Johnnie Walker continued to tell in-culture stories of personal progress across the world. In South Africa, 365 Johnnie Walker Striding Men statues along with human rights advocacy groups strode in unity on Nelson Mandela Bridge, in support of an abuse-free society.

• We continued to put liquid on lips at mentoring events, Formula One races and in the on premise, educating consumers on the heritage, craftsmanship and taste of Johnnie Walker variants and their versatility in mixed drinks.

• This was supported with the launch of Blender’s Batch Wine Cask Blend following the success of Red Rye Finish and Triple Grain American Oak.

• We continued to activate Johnnie Walker Blue Label and other variants in the gifting occasion with a focus on the holiday season, local festivals and travel retail channel.

• Johnnie Walker Blue Label launched a Ghost and Rare special release, crafted using irreplaceable whiskies from "ghost" distilleries that have long since closed, together with other rare malt and grain scotch.

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• Johnnie Walker Black Label is the world’s most revered blended scotch and this year we are reminding the world why.

• We are reminding consumers that Johnnie Walker Black Label is made from more than 30 of the best single malt and grain whiskies from the four corners of Scotland. It is aged for at least 12 years, expertly crafted by our small team of 12 blenders and is widely recognised by whisky experts.

• Through a partnership with the film Blade Runner 2049 and Oscar-nominated director Denis Villeneuve, we launched Johnnie Walker Black Label The Director’s Cut.

• Across our key markets we dialled up Johnnie Walker Black Label activation in the off premise and ‘Liquid on Lips’ in the on premise, and it was at the heart of our annual festive season gifting campaign.

• And in the US, we launched a new Johnnie Walker Black Label campaign – Step Right up.

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• In China, the biggest spirts market globally, penetration of international spirts and scotch remains low.• The prospects for scotch in China are bright with favourable demographics and rising incomes. • Recent trends suggest that interest is increasing in the whisky category, which is largely scotch right now:

• Whisky is the most preferred spirits among high net worth individuals and this trend is accelerating.• There has been a boom in whisky led bars nationwide with more than 300 bars in China now.• Our second whisky summit in China generated a lot of interest with over 500 key trade customers,

high net worth consumers and media influencers attending.• We continue to invest in building the scotch category in China with a focus on super deluxe scotch:

• We are educating Chinese consumers on the taste profile, heritage and craftmanship of scotch with our Whisky Academy program and the ‘Love Whisky’ social media platform.

• We are expanding our whisky boutiques. These are high end off premise stores that educate and expose consumers to our entire scotch portfolio.

• We are tapping into the interest in prestige scotch with our rare scotch malts and cask offerings. • We are driving awareness of Johnnie Walker Blue Label and The Singleton to access the consumer

interest in super deluxe blends and scotch malts.

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• Turning to US Spirits, our second focus area. • At our Capital Markets Day in May, we shared with you how we have strengthened our understanding of

consumer occasions as well as shifting demographics, attitudes and behaviour. We are utilizing these insights. to participate in the right occasions with the right brands at the right price.

• In F18 we are:• Continuing our focus on recruiting millennials and multi-cultural consumers, while expanding it to

ageless 50 plus consumers. • Continuing purpose driven communications, which we are activating locally at scale in F18.• Stepping up our focus on the on premise and continuing to connect with consumers using the right

mix of traditional and digital channels.• And amplifying what worked in F17 with an up-weight in marketing investment that we started in the

second half of F17.• Net sales in the first half grew 3%. Growth was a bit slower in the first half lapping a strong first half

innovation programme in the prior year, which included the launch of Crown Royal Vanilla.• In the first half, we started implementing our improved plans for our super premium vodkas, Cîroc and Ketel

One vodka.• Excluding Cîroc and Ketel One vodka , net sales grew 5.5%.

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• All key brands continued to gain category value share except in vodka. • Crown Royal continued its share gains with growth of the base variant Deluxe and Regal Apple accelerating vs

F17. However, overall growth slowed down as it cycled the launch of Crown Royal Vanilla in the first half of last year.

• Johnnie Walker, Captain Morgan and Baileys growth and category share gains continued.• Smirnoff depletion volume declined 1%. Brand equity scores improved as it continued to remind consumers

that it is a quality vodka at a great price through a campaign involving celebrity influencers, new packaging with quality cues and local activation against multi-cultural millennial consumers.

• Execution of improved plans on Cîroc and Ketel One vodka started in the first half and will take time to impact performance.

• Don Julio’s growth and category share gains accelerated while momentum on Bulleit continued.• Casamigos, while not included in organic results, grew 70% in Nielsen and more than doubled in NABCA in the

first half.

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• We have strong plans for the second half as the up-weight of marketing investment against proven brand plans continues, plans which have been driving improvement in brand equity and category share gains.

• Let me share with you why we have confidence that our plans on the core brands are working.• The Generosity platform is resonating and recruiting for Crown Royal. We have seen strong improvement in

equity in the first half. Growth on base variant Deluxe and Regal Apple has also accelerated in the first half versus last year. And we still have room to drive further trial and distribution for both Regal Apple and Vanilla, and further expand our liquid credentials through the first release of the Blenders series and the newest release of our Crown Royal Noble Collection in the second half.

• The same is true for our other core brands. We are seeing improvement in equity across Johnnie Walker, Smirnoff, Captain Morgan and Baileys as a result of our purpose driven communications and local activations.

• The up-weight of marketing against core brands will continue into the second half. • In super premium vodka, we know we have more to do:

o Cîroc activation in the first half focused on its core 3 variants (Blue, Apple and Peach) and the launch of the new flavour, French Vanilla. Second half plans continue the focus on the core 3 variants with digital and social media, sampling and local events. We will also bring back Cîroc Summer Colada which has introduced Ciroc into the summer beach and pool occasions.

o We launched the Ketel Your soda platform in the first half reminding consumers that it is a family made vodka, 100% non-GMO and crafted to be an exceptionally smooth vodka. We will continue to build momentum behind it in the second half with a strong local and national media plan, and continue to engage consumers at lifestyle events in key markets with the Ketel Market sampling mechanic, which has been very well received by consumers.

• Reserve brands excluding Cîroc and Ketel One vodka grew double digit in the first half with Don Julio growth accelerating and continued strong growth on Bulleit and Johnnie Walker reserve variants.

• And there is a robust pipeline of exciting innovation launches planned in the second half which you will hear about in the coming months.

• These strong plans coupled with a robust innovation pipeline and continued up-weight in marketing will set us up well in the US in the second half.

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• In India, net sales grew 2% in the first half, an improvement versus the second half of last year, which was broadly flat.

• The highway ban impact has been reducing sequentially in the first half as outlets re-open or relocate and business has normalised at the end of the first half.

• Our strategic priority in India is to grow our prestige and above brands which now represent almost 65% of our business.

• Our Prestige and above brands performance improved in the first half, growing 6%.

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• Let me share some examples of the execution of our plans on our prestige and above brands• Johnnie Walker grew net sales 6% in the first half as we painted India Johnnie Walker Black• Black Dog continued share gains in the primary scotch segment as we connected with consumers locally

through events like Black Dog Easy evenings with acts from acclaimed comedians• We continued the renovation of the power prestige brands in the first half, expanding the roll-out of Antiquity

new packaging nationally• And we continue to leverage innovation to recruit consumers.• In the first half, we launched Black & White 12 year old scotch, rolled out Captain Morgan Original rum

nationally and initiated a test for a ready to drink, Royal Challenge Xtra Bold

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• We also made progress towards our goal to improve operating margins while navigating the impact of the implementation of the Goods and Services Tax (GST) which went live on July 1, 2017.

• Gross margin improved by about 200 bps in the first half as we mitigated the impact of inflation and GST with a combination of positive mix, accelerating productivity and additional steps to mitigate the GST impact including price increases and input rate negotiations with suppliers.

• In marketing we focused on reducing non-working spend and improved ROI using the marketing catalyst tool.

• Overheads reduced by 10% in the first half as we continued to implement zero based budgeting and improve organization effectiveness.

• These productivity savings were partially reinvested to support relaunches and increased scotch activation.

• So good progress and we remain committed to delivering our medium term goal of improving organic operating margin to mid to high teens.

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• Let me close by saying:• We are a stronger company today, more agile, disciplined in execution and accountable for performance.• We are even more consumer centric, using data and insights to inform our actions.• We have a sharp focus on efficiency, which is allowing us to reinvest in our brands and deliver margin

expansion.• This has enabled continued growth and consistent cash flow generation.• These results demonstrate continued positive momentum from the consistent and rigorous execution of our

strategy. • This gives me the confidence that we are on track to deliver our medium term guidance of mid-single digit

top line growth and 175bps of organic operating margin improvement, in the three years ending fiscal 2019, and our performance ambition to be one of the best performing, most trusted and respected consumer products companies in the world.

• Thank you.

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