Diageo PLC (DEO) 2021 Q4 法說會逐字稿

Good morning, everyone, and thank you for joining us. I'd like to start by first thanking Kathy for her significant contribution to Diageo over the last 6 years and to give a warm welcome to Lavanya as she assumes the CFO role at an exciting time for Diageo.

I'd also like to highlight that we continue to improve on our communications with our investor and analyst community. We've streamlined today's presentation compared to our prior approach. I'll begin with an overview of our performance in fiscal '21. Lavanya will discuss our financial results. And I'll wrap up with why we believe Diageo is well positioned for long-term sustainable growth.

Fiscal '21 has been an extraordinary year as the entire world has been navigating through a very dynamic and challenging period. We expect this volatility to persist in the near term. We also know how challenging this year has been for our hospitality partners, and we continue to support the on-trade.

In terms of adversity, values and culture matter, and I'm very proud of how my Diageo colleagues have responded, I am enormously grateful for the hard work, resilience and ingenuity that they have shown throughout this period. They inspire me and fuel my positive outlook for the future.

There are 3 key messages that I hope you take away from today's call: First, Diageo has emerged stronger; second, Diageo is well positioned to deliver long-term sustainable growth; and third, Diageo continues to do business the right way for all our stakeholders.

Our business delivered an excellent set of results in fiscal '21. Diageo performed strongly across all key financial metrics, while we continued to invest in the business. We delivered top line organic growth of 16% versus fiscal '20. Operating profit growth and operating margin improvement were driven by strong growth in North America and partial recovery in emerging markets. Strong free cash flow generation was primarily driven by operating profit growth and continued discipline in working capital management. We are pleased to announce an increase of 5% for our final dividend for fiscal '21.

Our strong performance in fiscal '21 was driven by top line organic growth across all regions, demonstrating the benefit of our broad geographic footprint. Diageo organic net sales is now ahead of fiscal '19 prepandemic levels by over 6% on a constant basis.

We've delivered extremely strong growth in North America, our largest and most profitable market, driven by resilient consumer demand, spirits continuing to take share of total beverage alcohol and the replenishment of stock levels by distributors and retailers.

Europe benefited from continued strong consumer demand in the off-trade channel and the gradual recovery of the on-trade channel in certain markets.

There has been continued recovery in our other regions, which have rebounded faster than expected. However, there is still ongoing volatility in some key markets, including India, and we expect this to continue given the continuing impact of COVID-19. Travel Retail remains heavily impacted by ongoing restrictions on global travel.

Although the pace of recovery has differed across our regions, our performance has been strong. Across all our markets, our goal is to win quality market share. Off-trade total beverage alcohol volumes grew 12% in 2020, an uplift driven by an on-trade decline of 38% as consumption moved between channels. We've responded to increased off-trade demand with focused commercial execution, up-weighted marketing investment and accelerated innovation. This has delivered strong results throughout the year.

In fiscal '21, we held or grew our off-trade share for over 85% of net sales in measured markets. I am delighted with what we have already achieved, and I am excited about what lies ahead. Based on IWSR data for calendar 2020, Diageo has less than 2% share of the global total beverage alcohol market by volume and 4% by value. This creates a significant growth opportunity for our business.

In response to clear shifts in consumer behavior and preferences, we've used our consumer insights and commercial capabilities to quickly pivot to meet consumer demand. We've shifted marketing investment from in-person events to traditional and digital media and accelerated innovation to address new consumer occasions. And as people have discovered their inner mixologists at home and lower tempo spirits occasions have grown significantly, we've responded with new creative ways to engage, inspire and entertain consumers virtually.

Tanqueray recently kicked off its global partnership with Stanley Tucci with a live stream where he mixed up fresh Tanqueray No. TEN cocktails and offered at-home cocktail making kits to 100 lucky Londoners. And you can see Stanley in action in a short video on the Tanqueray channel on YouTube.

Another consumer trend that has really accelerated during the pandemic is e-commerce. By increasing the visibility and ease of purchase for our brands online, we've driven strong performance with some of our largest e-commerce customers. Diageo remains #1 in spirits retail sales on Amazon in Europe, #1 in spirits retail sales on Drizly in the U.S. And in China, we've maintained our leadership in whiskey with a 26 share of whiskey retail sales on Tmall. As well as building on our partnerships with e-retailers and traditional trade channels, we are developing our own e-commerce channels. In fiscal '21, we launched 9 new sites, bringing the total to 28.

Moving on to premiumization. The desire to drink better, not more, remains a long-term global trend. In fiscal '21, our Reserve portfolio grew 36%, now accounting for 25% of net sales value. The tequila category has gained significant momentum, underpinned by strong premiumization. Don Julio 1942, our luxury añejo tequila, has become renowned for its quality, steadily building cultural cachet among celebrities, influencers and discerning tequila fans to become the largest prestige and above spirits brand in the U.S. by volume and net sales value.

In fiscal '21, we also acquired Aviation American Gin and Chase Distillery, strengthening our premium-plus portfolio with these fast-growing brands.

As consumers increasingly seek convenience, the ready-to-drink category is growing fast, particularly in the U.S. We believe long-term consumer trends support this growth, and we're building a portfolio that responds to this opportunity.

We participate in hard seltzers through our Smirnoff brand, including our recent innovation, Smirnoff Seltzer Pink Lemonade. And for spirits-based RTDs, this year, we launched Ketel One Botanical Vodka Spritz, Tanqueray Crafted Gin Cocktails and Crown Royal Cocktails, which are all performing well. Crown Royal Cocktails has launched in just 8 states in the U.S. and has already gained 9 basis points of U.S. spirits market share in the first 6 months since launch.

Our commercial capabilities combine world-class brand building with our data tools and analytics. Our people and culture underpin this. We believe our data analytics tools give us a competitive advantage by digitally enabling our sales and marketing teams. As a result, we've delivered excellent commercial execution and brand activation, both in-store and online.

EDGE 365 and Diageo One allow our sales reps to have more effective sales goals and more robust customer discussions. These solutions have helped to enable an almost 20% increase in the number of outlets called on since the start of COVID-19. And EDGE 365 has now been deployed in 14 countries.

We're incredibly proud of our brands. They are iconic, relevant and culturally present. Our talent in brand building is at the heart of our business success. In fiscal '21, we consciously drove creativity with precision. Creativity connects people to our brands, and precision enables us to direct that creativity systematically to deliver excellent business outcomes.

Crown Royal use creativity and data to raise the game on moderation, partnering with sports legend, Kevin Garnett, to encourage moderation and hydration on NFL game days. The campaign used precision messaging to get our moderation message to consumers right as the games went to a commercial break.

Ongoing purposeful innovation remains a key tool to recruit new consumers, unlock new occasions and drive sustainable growth. This year's launch of Baileys Deliciously Light has made an incredible impact on consumers seeking a lighter alternative. 84% of consumers said they would try it again, and it is seeing 2x the repurchase rate of other Baileys launches.

We've continued to innovate behind Guinness with a number of exciting new releases this year, including Guinness Nitro Cold Brew in the U.S., Guinness Smooth in Africa, and Guinness Zero Draught in Ireland and Great Britain. As we enter fiscal '22, I'm as excited as ever about the pipeline of innovation we have planned.

In support of driving sustainable growth, we're making targeted capital investments, including our multiyear GBP 185 million Scotch whiskey tourism investment program. This will be a powerful platform to engage and recruit new generations of consumers as well as creating jobs and supporting our local communities.

As part of this program, we're also reopening the 2 ghost distilleries of Port Ellen and Brora. From a personal perspective, I'm delighted that the reopened Brora distillery began production in May 2021.

We hugely value our relationship with our on-trade customers and have supported them strongly in the recovery. Raising the bar is a $100 million global program to support pubs and bars around the world and has already benefited over 39,000 venues across 11 countries. Through our other platforms such as Diageo Bar Academy, we're providing ongoing training and guidance to bartenders and bar owners on safe reopening, including online menus and takeaway cocktails.

Starting in April, the GB, U.S. and Canada markets launched a Guinness Welcome Back campaign to celebrate the anticipation of being back in the pub, making Guinness the most talked about beer brand in the world on social media as the pubs reopened.

We recognize that we can only achieve our ambition to be one of the best performing, most trusted and respected consumer companies globally through engagement and partnership with all our stakeholders. It is fundamental to our performance ambition that we do business in the right way, and it is embedded in our strategy.

Diageo is already an industry leader in sustainability. Our achievements against the 2020 goals we launched in 2010 was set out last year. However, even against that backdrop, we've made a step change in our ambition with the launch of Society 2030: Spirit of Progress last November. We provided a deeper dive into Society 2030 on our ESG webcast in April, which is available to view on diageo.com.

We've continued to build on our strong track record in sustainability and responsibility and have had a number of achievements during fiscal '21. We're particularly pleased with our achievements in championing inclusion and diversity.

For the first time, 20% of the shares granted to our senior management under our long-term incentive plan will be linked to ESG measures across all the plan's focus areas, creating direct accountability for our 2030 goals. We are among the first group of companies directly to incentivize delivery on societal impact in this way.

I'm immensely proud of Diageo's sustainability and responsibility achievements to date, including the external recognition we've received this past year for many of our achievements across environmental, societal and governance areas.

We have a strong track record of creating value for our shareholders. We've increased our full year dividend per share every year for the last 20 years and have been recognized as one of the few dividend compounders in the FTSE 100. We've resumed our return of capital program earlier than expected based on our strong performance this fiscal. This demonstrates our confidence in the long-term health and recovery of our business. Our 10-year annualized total shareholder return to 30th June 2021 is in the top quartile of our peer group.

Now I'll hand over to Lavanya to take you through more of the detail of our financial results for fiscal '21.

Thank you, Ivan, and good morning, everyone. I'm honored and excited to have the opportunity to be in this leadership role at Diageo. I look forward to building off the strong foundation Kathy has put in place and partnering with Ivan and the team to continue to deliver sustainable long-term growth and create shareholder value.

As Ivan mentioned, our business delivered an excellent set of results in fiscal '21. These strong results are an outcome of the incredible resilience and agility Diageo has demonstrated in adapting quickly to this volatile environment.

In fiscal '21, we delivered organic net sales growth of 16%, reflecting the underlying strength of our business and the fast recovery we have seen across all regions. Our organic volume growth was up 11.2%, and we delivered 4.8% positive price/mix. Organic operating margin increased 46 basis points.

Cash performance was exceptionally strong, continuing to demonstrate how we have embedded an everyday focus on cash into our business rhythm. We delivered GBP 3 billion of free cash flow in fiscal '21, which was GBP 1.4 billion higher than last year, driven mainly by the growth of organic operating profit and working capital management.

Preexceptional earnings per share increased 7.4%, reflecting the higher operating profit delivery, partially offset by unfavorable exchange and, to a smaller extent, higher taxation. Basic EPS increased 89%, mainly due to lapping exceptional items from fiscal '20.

The recommended final dividend increase of 5% over the fiscal '20 final dividend reflects our confidence in the long-term health of our business. We continue to invest in sustainable long-term growth while delivering consistent returns to shareholders.

Return on invested capital was 13.5%, up 112 basis points as a result of organic operating profit growth, partially offset by increased tax and unfavorable exchange. Total shareholder return was 32%, driven by an increase in share price over the last 6 months and supported by our fiscal '20 final dividend and fiscal '21 interim dividend.

After delivering top line growth of over 6% in fiscal '19, our business was impacted by COVID-19 in the second half of fiscal '20, causing organic net sales to decline over 8% in fiscal '20. We have since seen strong sequential improvement in fiscal '21, resulting in organic net sales growth of 16%. Fiscal '21 organic net sales were above fiscal '19 levels on a constant basis.

The strong growth was driven by resilient consumer demand in the off-trade and a partial recovery of the on-trade in key markets as we lapped a COVID-19-impacted second half of fiscal '20. Organic net sales also benefited from lapping a reduction in inventory levels by our customers in fiscal '20 and the replenishment by distributors and retailers of stock levels mainly in North America in fiscal '21.

Travel Retail continued to be dilutive to growth, declining 62% as travel restrictions continued. As Ivan mentioned, we held or gained off-trade share in over 85% of net sales in measured markets as we up-weighted marketing investments significantly to higher than fiscal '19 levels.

Price/mix was robust at 4.8%, primarily driven by strong premiumization trends particularly in North America and Greater China and price increases in markets in Latin America and Caribbean and Africa. Our fiscal '21 organic net sales represented a 2-year CAGR of 3% versus fiscal '19. Excluding the impact of Travel Retail and Guinness, we estimate the 2-year CAGR at about 6% versus fiscal '19.

Let me now dive a little deeper into our net sales trajectory. In fiscal '21, all 5 regions grew organic top line, with 3 of the 5 regions ending with organic net sales above fiscal '19 on a constant basis. These 3 regions were North America, Africa and Latin America and Caribbean.

North America organic net sales grew 20%. This represents an 11% 2-year CAGR compared to fiscal '19, which was higher than the pre-COVID trajectory. The agile changes we made to respond to the consumer shift to off-premise and e-commerce, including up-weighting marketing investment, have resulted in improved TBA share performance. Organic net sales growth also benefited from both lapping a reduction in inventory levels by our customers in fiscal '20 and the replenishment of stock levels by distributors and retailers in fiscal '21.

In U.S. Spirits, our biggest market in North America, organic net sales growth was ahead of depletions growth by approximately 5 percentage points. In Europe and Turkey, organic net sales grew 4%, with spirits and ready-to-drink growing double digits, while beer declined 21%. Northern Europe, Great Britain and Turkey saw strong recovery, while Ireland organic net sales declined due to higher exposure to the on-trade.

Strong execution resulted in off-trade spirits share gains in 5 of the 6 markets. Travel Retail in Europe declined 56%, reflecting the continued restrictions on international travel. In Africa, organic net sales grew 20% with all markets, excluding Travel Retail, growing despite ongoing COVID-19-related restrictions.

Beer organic net sales grew 19%, mainly driven by Guinness and Malta Guinness. Spirits organic net sales grew 21%, mainly driven by consumer demand for mainstream spirits. Latin America and Caribbean organic net sales increased 30% with all markets growing, excluding Travel Retail. Scotch had a strong recovery growing 30% with strong double-digit growth across Johnnie Walker, Buchanan's and primary scotches. The organic net sales growth also reflected the benefit of lapping a reduction in inventory levels by our customers in fiscal '20, primarily in Mexico.

The Travel Retail business declined 63% due to continued international travel restrictions. In Asia Pacific, organic net sales grew 14%, following a 16% decline in fiscal '20, driven by the strong recovery in Greater China and Australia. The Travel Retail Asia and Middle East business continued to be impacted significantly. In fiscal '21, our business in Greater China grew 38%, supported by strong growth in Chinese white spirits and scotch.

We have strong momentum in North America, our largest region, representing 41% of Diageo reported net sales. Organic net sales grew 20% in fiscal '21, with strong growth in U.S. spirits, up 24%, and Diageo Beer Company, up 12%. North America total beverage alcohol category continues to be very vibrant with resilient consumers, a shift from beer and wine to spirits, a fast-growing ready-to-drink category and strong premiumization trends. Within North America total beverage alcohol, tequila, American whiskey and ready-to-drink are some of the fastest-growing categories.

Diageo's share performance has considerably improved with strong share gains in the last 3 and 6 months, driven by share gains of our tequila, scotch and super premium plus vodka brands. As we have previously said, there's plenty of runway for continued growth in North America, where Diageo currently has a 7% share of total beverage alcohol.

We up-weighted marketing, increasing it by 1/3 versus fiscal '20. We invested in opportunities in the off-trade and e-commerce channels, informed by our marketing and analytics tools. Organic operating margin decreased 124 basis points, primarily reflecting increased investment in marketing, adverse category mix and the inflationary impact of agave.

All of our key categories grew, posting a strong recovery versus fiscal '20. Scotch grew 15% with all regions growing versus fiscal '20. Johnnie Walker, Buchanan's, scotch malts and primary scotch posted a strong recovery with net sales growing double digits. Scotch also benefited from strong premiumization trends in U.S. spirits and some markets in Latin America and Caribbean and Asia Pacific. Travel Retail continued to be significantly subdued, declining 60% versus fiscal '20. Scotch, excluding Travel Retail, was ahead of fiscal '19 on a constant basis.

Vodka grew in all regions except Asia Pacific. Smirnoff net sales grew 5%, driven by flavors. Ketel One was flat. And CÎROC grew 26%, driven mainly by the U.S. business, where we refreshed activation to engage with CÎROC's consumer base.

Gin grew 14% with double-digit growth in Europe and Africa and Latin America and Caribbean. Tanqueray and Gordon's both grew double digits.

Tequila grew 79% on top of a 25% growth in fiscal '20. It now constitutes 8% of Diageo's net sales. Growth was mainly driven by the strong performance of Don Julio and Casamigos in North America. Both brands gained significant market share in the U.S. spirits category.

Beer grew 4%, and Guinness was broadly flat. Decline in Europe and Turkey due to the impact of COVID-19 on the on-trade, particularly in Ireland and Great Britain, were offset by strong growth of beer in Africa. Beer in Africa grew 19%, driven by Guinness and Malta Guinness. Smirnoff flavored malt beverages grew 17% in Diageo Beer Company USA.

Premiumization was one of the key pillars supporting both our recovery and sustainable long-term growth. Our consistent focus and investment in our super premium plus brands over the past few years has increased their share of our business from 12% in fiscal '13 to 25% in fiscal '21.

In fiscal '21, super premium plus brands grew 35% and contributed to almost half of Diageo's net sales growth. This robust growth was driven by strong commercial execution in U.S. spirits on Johnnie Walker super deluxe variants, CÎROC vodka and our tequila brands as well as growth of our Shui Jing Fang business in the Chinese white spirits category.

The premium segment is on track to return to pre-COVID-19 levels. Growth in fiscal '21 was fueled by Canadian whiskey, our ready-to-drink portfolio in North America, the gradual recovery of beer in Africa and the scotch portfolio in Latin America and Caribbean and North America.

Our standard segment has recovered to pre-COVID-19 levels, driven by growth in our primary scotch brands as consumers in some regions have sought more affordable alternatives. White Horse, Black & White and Bell's grew strong double digits. We also celebrated the bounce back in liqueurs, led by Baileys, growing 24% especially in North America and Europe.

At the other end of the spectrum, in emerging markets, we have seen some short-term down-trading to value brands as consumers look for value in more challenged economic conditions. Value brands grew double digits. In Africa, this was primarily driven by gin and vodka, and in India, by the IMFL brands.

The breadth of our portfolio across price tiers positions us well to offer consumers the right product choice, whether they choose to trade down to lower price points or follow the global premiumization trend and trade up to higher price tiers.

Reported operating profit increased 7.2%, driven mainly by strong organic growth, partially offset by an unfavorable impact of exchange rate movements. Organic operating profit increased 17.7% with growth in 4 of the 5 regions. Organic operating margin improved 46 basis points. Reported operating margin, excluding exceptional items, declined 31 basis points, mainly driven by unfavorable exchange rate movements and fair value remeasurement, partially offset by organic operating margin growth.

Organic operating margin improved by 46 basis points, driven by overhead efficiencies and lapping one-off expenses incurred last year relating to the operating environment disruption. These were partially offset by the decline of gross margin and the impact of up-weighted marketing spend.

Gross margin declined 40 basis points, primarily driven by adverse mix, especially in our Guinness beer business, which was impacted by channel and market mix. Supply productivity and improved fixed cost absorption from volume growth largely offset inflation and one-off costs in the year. In fiscal '21, we have up-weighted marketing investment in markets and categories with positive growth momentum, quickly responding to channel shifts and the increase in at-home occasions.

Embedding everyday efficiency is one of our strategic priorities. We have continued to make good progress on productivity, and we have embedded an everyday efficiency mentality across the business. This year, we have continued to deliver savings and added value back to the business across 4 key focus areas.

In our biggest plant in North America, we have leveraged technology to identify material waste at a product and machine level. Availability of this detailed information has allowed us to take additional actions to reduce waste.

In India, as part of our sustainability journey, we have significantly reduced the use of fossil fuels, replacing it with biomass and solar energy. Not only has this led to a reduction in greenhouse gas emissions, the switch has also delivered cost savings.

EDGE 365, our sales force automation solution, is allowing us to create an efficient sales force by increasing the number of sales calls per day and reducing the time spent on administrative activities, including contract management. It is now deployed in 14 countries spread across all regions.

Our procurement teams delivered further efficiency in media costs by implementing a new media model and bringing on board a new media agency.

We delivered GBP 3 billion in free cash flow due to strong profit growth, working capital gains and additional dividends received from joint ventures and associates. The reduction in net working capital was mainly due to a large increase in creditors in fiscal '21 compared to the prior year as we lapped low creditor balances at the end of fiscal '20 arising from reduced volumes and cost control measures.

In fiscal '21, creditors have increased as we have delivered improved business performance and increased marketing investment. While debtors and inventory also expanded as the business picked up, it was not to the same degree. Our laser focus on managing debtor risk and collections reduced our days sales outstanding by over 10 days since fiscal '20 year-end, and our overdue balances were at their lowest level in years.

As I look at fiscal '22, I believe we will be back to a more normalized cycle where our overall net working capital position increases in the first half and then reverses back in the second half. Lower levels of CapEx in fiscal '21 compared to the prior year also increased free cash flow as some projects have been delayed due to COVID-19. In fiscal '22, I expect higher CapEx spend versus fiscal '21 between GBP 800 million and GBP 850 million as we invest to support growth.

We received 2 years of dividend from associates in fiscal '21. GBP 161 million relating to financial year ended December 31, 2019, was recovered in October 2020 and January 2021. And GBP 128 million relating to the financial year ended 31st December 2020 was paid on time in April 2021. In fiscal '22, we expect to be back to the normal cycle of receiving the dividend for the previous calendar year in the second half of our fiscal year.

We also saw tax cash benefits in fiscal '21 as we lapped a relatively higher level of tax payments in fiscal '20. Our strong performance and cash flow generation enabled a reduction of GBP 1.1 billion in closing net debt compared to the end of fiscal '20. Average net debt was flat to fiscal '20.

Net interest charge was GBP 15 million higher than fiscal '20 where reduced gains from our FX swap portfolio and the costs associated with enhancing our liquidity position were mostly offset by more efficient borrowing. For the same reason, our effective interest rate at 2.7%, while better than expected, is 0.1% higher than fiscal '20. As I look ahead, I expect our effective interest rate to be in the range of 2.7% to 3%, mainly dependent on the movement we see in short-term interest rates and the timing of cash flows.

Our leverage ratio at 2.8x is back within our target range, enabled by our strong performance. And we remain committed to a leverage ratio of 2.5x to 3x adjusted net debt to adjusted EBITDA.

Our disciplined approach to capital allocation remains unchanged. We are pleased to be back within our target leverage range. Our continued strong liquidity position enabled us 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.

Over the course of the year, we have completed the acquisition of Aviation American Gin, Lone River Ranch Water, Loyal 9 Cocktails and Chase Distillery. We continue to invest in Distill Ventures, which allows us to partner with drinks industry entrepreneurs as a sole investor and has led to exciting acquisitions, including Seedlip distilled nonalcoholic spirit.

Today, we have announced a recommended final dividend of 44.59p per share, year-on-year growth of 5% to fiscal '20 final dividend, bringing our full year dividend growth to 3.8% compared to the fiscal '20 dividend. This increase reflects our improved performance while recognizing the ongoing economic uncertainty created by the pandemic.

We have a progressive dividend policy, and we continue to rebuild dividend cover back to our target range of 1.8x to 2.2x. Dividend cover is at 1.6x for fiscal '21, which represents a marginal improvement to fiscal '20. In July 2019, we announced a return of capital program of up to GBP 4.5 billion over a 3-year period to end June '22.

Through to January 2020, we returned $1.25 billion through share buybacks in the first phase of the program. In April 2020, we paused the program due to the COVID-19 impact. Subsequently, in May 2021, we announced that we were recommencing the program, extending the original completion date by 2 years to 30th June 2024.

We also announced the second phase of our program to buy back shares in value up to GBP 1 billion to be completed by the end of fiscal '22, of which GBP 108 million by way of share buybacks has been completed in May and June 2021. We will keep future return of capital, including the most appropriate mechanic of either share buybacks or special dividends under review to ensure that we allocate Diageo's capital in the best way to maximize long-term value for the business and shareholders.

Moving on now to foreign exchange. Unfavorable exchange significantly impacted both net sales and operating profit in fiscal '21, driven by strengthening pound against U.S. dollar and emerging market currencies. We are not able to provide specific guidance in relation to fiscal '22. However, if we apply the exchange rates of GBP 1 to $1.39 and GBP 1 to EUR 1.16, where sterling has further strengthened compared to the actual exchange rates experienced in fiscal '21, net sales and operating profit would have been further negatively impacted in fiscal '21 by approximately GBP 325 million and GBP 110 million, respectively. We believe this is indicative that at these rates, there will be an additional negative impact on net sales and operating profit in fiscal '22.

Earnings per share before exceptional items increased 7.4% from 109.4p to 117.5 p. This increase was largely due to the growth of organic operating profit, profit from associates and joint ventures. It was partially offset by an unfavorable foreign exchange impact as well as, to a smaller extent, higher taxation, the impact of acquisitions and disposals, fair value remeasurement and noncontrolling interest.

Our tax liability increased mainly due to the increase in taxable profit and mix of markets. Our tax rate before exceptional items was 22.2% compared to 21.7% for fiscal '20. We expect the tax rate before exceptional items for fiscal '22 to be within the 22% to 24% range.

Noncontrolling interest had a negative impact on EPS as a result of the higher profit in our listed subsidiaries. Prior year share repurchases reduced the weighted average number of shares, generating a positive impact on EPS.

In summary, we are very encouraged by our strong fiscal '21 performance in a volatile environment. Given the global nature of our business, our ability to provide full year guidance for fiscal '22 is currently constrained by the volatility related to COVID-19 in several of our markets. We are, therefore, not reintroducing specific net sales and operating profit guidance for fiscal '22 at this time.

We expect organic net sales momentum to continue into fiscal '22. We believe we are well positioned to continue to benefit from resilience in the off-trade and recovery in the on-trade. However, we expect near-term volatility to remain, including the potential impact of any future waves of COVID-19 and for disruption in travel retail to continue.

In North America, we expect momentum to continue, with market growth returning towards historical levels of mid-single digits. We expect off-trade consumption growth to slow, but we expect a benefit from lapping a weak on-trade comparator. We will continue to invest ahead in marketing and innovation to underpin net sales growth in our well-positioned portfolio of premium brands.

In Europe and Turkey, following a partial on-trade recovery in fiscal '21, we expect stronger growth to the extent that the on-trade restrictions continue to ease, particularly benefiting our Guinness business.

In Africa, Latin America and Caribbean and Asia Pacific, we will continue to invest smartly in marketing as our business continues to recover, recognizing that volatility in these markets is likely to persist.

In fiscal '22, we expect organic operating margin to benefit from a further recovery in sales volumes, positive channel mix and premiumization trends while we continue to invest in marketing and commercial capabilities, particularly in North America and China.

We believe our focus on everyday efficiency and revenue growth management will help to mitigate against rising inflationary pressures. We are confident in our ability to grow our brands and improve our competitive position. And with that, back over to you, Ivan.

Thank you, Lavanya. I am very pleased with the strength and quality of our performance in fiscal '21. Our actions through COVID-19 have enabled Diageo to emerge stronger and better positioned in an increasingly attractive and vibrant spirits industry. We have increased confidence in the attractive runway ahead for sustained spirits growth and premiumization. We have further strengthened our culture of creativity, agility and disciplined execution, enabling us to seize the changing consumer opportunities.

We continue to invest for the long term in innovation, CapEx and our portfolio. This investment is supported by productivity gains from our embedded culture of everyday efficiency. This is underpinned by our strong ESG track record and our Society 2030 action plan to do business the right way from grain to glass with ambitious goals on positive drinking, inclusion and diversity and sustainability.

While some volatility is likely to continue in the near term, I am optimistic about our business recovery and outlook. I am confident in our people, our strategy and our ability to deliver long-term shareholder value. Thank you very much.