Driving operational improvements across the whole supply chain Sue McGeorge GB Supply Chain Director

Driving out costs to invest in growth

Sue McGeorge GB Supply Chain Director

Who we are | Our brands and our purpose

Celebrating Life, Every Day, Everywhere

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Diageo’s growth model A global leader with the ambition & capabilities to achieve more

To create one of the best performing, most trusted and respected consumer products

companies in the world

Build and then constantly extend our advantage in route

to consumer

Strengthen and accelerate our premium core brands

Drive out costs to invest in growth

Innovate at scale to meet new consumer needs

Win in Reserve in every market

Ensure we have the talent to deliver our performance

ambition

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The game is changing for FMCG companies – there are clear commercial challenges (1/2)

Growth is flat or slow in Developed Countries

Commodity inflation & volatility is at an all-time high

SOURCE: Euromonitor; World Bank Development Prospects Group, July 2013; Team analysis

2,663

2013

2,680

2012

2,737

2015

2,718

2014

2,698 2,756

2016 2017

FMCG forecasted revenue for developed countries US$ Bn - at constant 2012 prices

1

2

CAGR +0.7%p.a.

Weighted indices of non-energy commodity prices Index to 2005 = 100

Ø 86.1

2000

72.2

1990

84.0

1980

102.2

Actual

190.0 209.9

2011 2010 2012

Ø 191.3 173.9

Projection

175.1

2015

174.9

2020

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The game is changing for FMCG companies – there are clear commercial challenges (2/2)

Pressure on service levels for basics, new products & promotions

Emerging markets are growing, but with increased competition

Expectations from retailers on FMCGs 10 – Most important, 1 – Least important

SOURCE: OECD; Euromonitor; Company filings; Team analysis

Pernod Ricard

6.2%

Beam

6.7%

SAB Miller

6.4%

InBev

4.8%

Diageo

3.3%

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Organic revenue growth (Global) % - Last 5 years CAGR

FMCG revenue growth

% - Last 5 years CAGR at current prices

Emerging markets

11.1%

1.03.4

3.94.1

4.75.25.2

6.07.9

Master data accuracy and timeliness Appropriate lead time and delivery frequency Delivering what we ordered at the correct time

Excellence in e-commerce Excellence in product range management Efficient and effective customer care Excellence in the management of promotions Excellence in new products introduction Effective collaboration

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Diageo’s Supply chain

3.5 billion litres of drinks

180 markets worldwide

135,000 customers

24,000 suppliers

7,856 Supply employees worldwide (+4,200 USL)

28,410 Diageo employees (+ 9,600 USL)

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Transforming our Supply chain to unlock growth

Differentiation through our agile & responsive Supply chain

Innovation – scale & differentiation

Sustainability

1

2

3

Best cost Supply chain model 4

Strategy supported by Structure 5

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Differentiated approaches

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Differentiated approaches to unlock growth Route to Consumer

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Differentiated approaches to unlock growth Route to Consumer

Mey Icki E-commerce

Luxury finishing centres Plainfield semi works

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‘From a One-Size-Fits all Supply Chain to an Efficient, Responsive & Agile Supply Chain focused on Value

Creation’

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‘EFFICIENT’ Supply Chain

High volume, predictable demand, low complexity

Dedicated lines

Direct cost effective distribution

Lower volume, more complex more volatile demand

Customisation stock holding close to market

‘RESPONSIVE’ Supply Chain

Highly unpredictable demand and critical time sensitivity

Manufacturing and distribution agility

‘AGILE’ Supply Chain

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GUINNESS INNOVATION

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Innovation scale and differentiation Liquid technologies

• Most technically challenged liquid development since invention of Baileys

• Supply & Commercial working in partnership

• Ruut Extra, first Diageo new to world beer using cassava, a local root in Ghana

• Fast, flexible innovation: launched to market in 8 weeks

• Technology leadership – transforming ability to develop liquids

• Premium positioning achieved without age statement

Baileys Chocolat Luxe

Ruut Extra Beer

Johnnie Walker Double Black

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Emerging middle class consumers The female consumer

Unlocking growth in developed markets Premiumising our brands

Innovation – supporting Diageo's growth

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Innovation scale and differentiation New packaging and technology

• Formats to make our brands available and accessible to consumers in new and exciting ways

• New packaging format with dedicated packaging lines

• Portable supply innovation allowing blending and bottling spirits locally in Africa

• Launched in Ghana • Cost effective solution to meet

growing consumer needs

Packaging Formats The Cube

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Jon – could we create a slide here that symbolises sustainability – perhaps the one from the S&R report?

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Investing for Sustainable Growth

Earning External Recognition

Bioenergy Roseisle/Cameronbridge Agriculture Nairobi Water

Roundtable

Highest score for environment in

beverage sector # 2 global food and beverage company

Best performing beverage company

in the world

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Focus areas to unlock growth | Driving margin expansion

Jon – don’t suppose we could create something similar that says ‘Best cost’

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Best cost Supply chain model Investment to create lower cost Supply operations

• Better planning efficiency

• Fewer changeovers • Shipping direct to

customers

• Invested £100m in leading technology

• Segmented SC for luxury/ innovative product launches

Line strategy in the US

Footprint rationalisation & investment

Scotland

Footprint rationalisation & brewery investment

Ireland

• Reallocation of volumes to Dublin Guinness brewery

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Best cost Supply chain model Procurement efficiencies

• Implementing new glass strategy

• New malt contracts for Ireland

Mitigating cost inflation

Demolition at Barnsley underway

Leveraging our global relationships

Vehicles loading for dispatch, Kenya

Increasing efficiency and improving health

and safety

• Lightweight trailers in key African markets

• Delivering circa £100M savings a year, across Supply, indirects and demand • 2500+ Procurement projects delivered every year • Half of this is through cost of goods efficiencies

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Operational excellence global governance, standards and execution

Overall Equipment Effectiveness (%)

Waste (%)

Productivity (9L cs /man hour)

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Operational excellence global governance, standards and execution

Overall Equipment Effectiveness (%)

Waste (%)

Productivity (9L cs /man hour)

Avg inventory (£m)

Case fill rate (%)

Cost per case (£)

Avg inventory (£m)

Cost per case (£)

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The right strategy, supported by the right people

Building capability A great place to work Talent Leadership & Development

• 8th best multinational • Only beverage and FMCG

company in the Top 10 • Received a distinction in 10

markets

• Advanced Negotiation Capability – Procurement

• End to End Supply Chain Capability Programme

• Multi – year Talent Planning • Future stars empowerment

Internships / Apprenticeships • Graduate / Future Leaders

Programmes • Diageo Leadership

Performance Programme • Spirited Women Network

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Transforming our Supply chain to unlock growth

Differentiation through our agile & responsive Supply chain

Innovation – scale & differentiation

Sustainability

1

2

3

Best cost Supply chain model 4

Strategy supported by Structure 5

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Unlocking growth through differentiated approaches | Customer service