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Diageo is the world’s leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, beer and wine categories. These brands include Johnnie Walker, Crown Royal, J&B, Buchanan’s, Windsor and Bushmills whiskies, Smirnoff, Ketel One and Cîroc vodkas, Captain Morgan, Baileys, Jose Cuervo, Tanqueray and Guinness.
Diageo is a global company, with its products sold in more than 180 markets around the world. The company is listed on both the New York Stock Exchange (DEO) and the London Stock Exchange (DGE).
We employ around 25,000 talented people worldwide with offices in around 80 countries. Our manufacturing facilities are located across the globe including Great Britain, Ireland, United States, Canada, Italy, Africa, Australia and Latin America and the Caribbean.
Diageo was formed in 1997, following the merger of GrandMet and Guinness, and is headquartered in London. The word Diageo comes from the Latin for day (dia) and the Greek for world (geo). We take this to mean every day, everywhere, people celebrate with our brands.
CHAIRMANDr Franz Humer was appointed chairman of Diageo plc in July 2008, having been a non-executive director since April 2005. He is also chairman of F. Hoffmann-La Roche Ltd. in Switzerland and chairman of INSEAD’s board of directors and a non-executive director of Citi Group Inc. He was formerly chief operating director of Glaxo Holdings plc and has held a number of other non-executive directorships.
CHIEF EXECUTIVE, EXECUTIVE DIRECTOR AND CHAIRMAN OF THE EXECUTIVE COMMITTEEPaul Walsh was appointed chief executive of Diageo plc in September 2000. He has served in a number of management roles since joining GrandMet’s brewing division in 1982, including chief executive officer of The Pillsbury Company. He was appointed to the GrandMet board in October 1995 and to the Diageo plc board in December 1997. He is lead non-executive and deputy chair of the board of the Department of Energy and Climate Change, a non-executive director of Avanti Communication Group plc, a non-executive director of Unilever PLC and a non-executive director of FedEx Corporation in the United States. He was appointed a business ambassador on the UK Government’s Business Ambassador network in August 2012 and is also a member of the Council of the Scotch Whisky Association.
CHIEF FINANCIAL OFFICER AND MEMBER OF THE EXECUTIVE COMMITTEEDeirdre Mahlan was appointed chief financial officer of Diageo plc in October of 2010 having worked for Joseph E. Seagram & Sons Inc. since 1992. She has held a number of senior finance positions in Diageo including finance director of our biggest region, North America, and as Global Head of Tax, of Treasury and of Shared Services. Most recently, she was deputy chief financial officer of Diageo plc. Deirdre was appointed to the board of Experian plc with effect from September 2012 and is also a member of the Main Committee of the 100 Group of Finance Directors.
Executive committee: Paul Walsh (Chief Executive Officer), Deirdre Mahlan (Chief Financial Officer), Ivan Menezes (Chief Operating Officer), Nick Blazquez (President, Diageo Africa, Turkey, Russia & Eastern Europe), Andy Fennell (Chief Marketing Officer), Gilbert Ghostine (President, Diageo Asia Pacific), David Gosnell (President, Global Supply and Global Procurement), Jim Grover (Group Strategy Director), John Kennedy (President, Diageo Western Europe), Randy Millian (President Diageo Latin America and Caribbean), Andrew Morgan (President, New Businesses),Tim Proctor (General Counsel), Larry Schwartz (President, Diageo North America), Gareth Williams (Human Resources Director) and Ian Wright (Corporate Relations Director).
STOCK EXCHANGE DATA AS AT 31 DECEMBER 2012
Listing London Stock Exchange New York Stock Exchange
Ticker DGE.L /DGE:LN DEO (ADR – 1:4)
Sector Beverages Beverages
Market cap £44,775,125,610 US$73,023,147
Shares in issue 2,505,603,000 626,378,000
MAJOR SHAREHOLDERS AS AT 31 DECEMBER 2012*
Legal & General Investment Management Ltd. (UK) 3.72%
MFS Investment Management (US) 3.51%
Norges Bank Investment Management (Norway) 2.12%
*source: Credit Suisse - the institutional shareholder positions are the aggregation of mutual fund and pension fund shares of an investment management company, identified and collated through regulatory responses. For major shareholders (3% or more) as notified to the company, please refer to Diageo’s Annual Report for the year ended 30 June 2012.
FINANCIAL CALENDAR
Q3 IMS 18 April 2013
Full Year Results 31 July 2013
AGM and Q1 IMS 17 October 2013
Financial Year 1 July to 30 June
ADVISORS
Corporate Brokers Credit Suisse and UBS
Auditors KPMG
DR FRANZ HUMER PAUL WALSH DEIRDRE MAHLAN
* Sales after excise duties (excluding Corporate)
** Pre exceptional items (excluding Corporate)
NET SALES BY REGION (£ MILLION)*
OPERATING PROFIT BY REGION (£ MILLION)**
NB: The tax rate before exceptional items for the six months ended 31 December 2012 was 18.4% compared with 18.1% for the six months ended 31 December 2011.
* Pre exceptional items
Volume (9-L equivalent cases)
88.8m 84.1m 6 1
Net sales (sales after excise duty)
£6,039m £5,757m 5 5
Marketing spend £926m £896m 3 5
Operating profit* £2,029m £1,866m 9 9
Profit attributable to equity shareholders
£1,538m £953m 61
eps* 60.9 55.9 9
Free cash flow £708m £580m
Recommended half year dividend per share
18.10 16.60 9
North America Europe
Africa
Latin America
Asia Pacific
SPLIT
39%
26%
11%
14%
10%
North AmericaEurope
Africa
Latin America
Asia Pacific
SPLIT
33%
26%
13%
13%
15%
882220
796 302
795225
1,577 528
1,947825
2013 INTERIM RESULTSSIX MONTHS ENDED 31 DECEMBER 2012
SIX MONTHS ENDED 31 DECEMBER 2011
REPORTED %
ORGANIC %
Non-executive directors: Lord Davies of Abersoch, Peggy B Bruzelius, Laurence M Danon, Betsy D Holden, Ho KwonPing, Philip G Scott and H Todd Stitzer.
REGIONS (Six months ended 31 December 2012)
These results demonstrate Diageo’s strength in North America. The region, in which we are the leading spirits player, continues to be very attractive. Performance in the first half was driven by 8% net sales growth of strategic brands in US Spirits which makes up almost two thirds of Diageo North America net sales. Double-digit increases in whisk(e)y and vodka net sales were key drivers, with most of the growth coming from the premium and above segments.
Reserve brands delivered double-digit growth, with continued strong performance from Ketel One and Cîroc vodkas, Don Julio, Bulleit Bourbon and
the super premium variants of Johnnie Walker. Marketing investment behind the reserve brands portfolio increased 25%.
Innovations continued to drive excitement and growth. In the half we launched new flavours including Crown Royal Maple Finished and Smirnoff Iced Cake and Kissed Caramel. Our marketing investment increased by 5% and was focused behind these new product innovations as well as increased media investment behind our core growth brands.
NORTH AMERICA
The economy in Europe remains uneven and our performance reflected the polarised economic backdrop in the region.
The faster growing markets of Europe continued their excellent double-digit growth trajectory. In Russia and Eastern Europe, volume grew 9% and net sales 15%, driven by price increases and double-digit net sales growth of scotch, liqueurs and rum.
Performance in Western Europe reflects four main drivers: Northern Europe continued to grow with Germany and Benelux delivering double-digit net sales growth. France saw a significant decline in net sales as the business was lapping a strong buy-in against an excise tax increase in January 2012. In Southern Europe,
weakness in consumer demand and reductions in customer inventories, led to a net sales decline of 19%. Captain Morgan grew net sales 15%, driven by Great Britain and Germany, while Tanqueray and Johnnie Walker Black Label also enjoyed double-digit net sales growth in these countries. The reserve business grew net sales 7% supported by the launch of Johnnie Walker Gold Label Reserve and Platinum Label 18 year old.
The business in Turkey delivered a very strong performance despite increases in excise taxes and utility prices. Strong net sales growth of Yeni raki coupled with excellent growth of Johnnie Walker and Smirnoff delivered a 14% increase in net sales.
EUROPE
We have again delivered strong net sales growth, achieved through the excellent performance of spirits and solid growth in beer. We have further built our brand equities with increased investment behind our core beer brands and international spirits, and we have continued to deliver innovations tailored to the emerging middle class, embedding new products launched last year, such as Dubic lager in Nigeria, Snapp ready to drink, Malta Guinness low sugar and new pack formats.
In Nigeria, despite the impact of economic uncertainty on consumers, spirits, led by Johnnie Walker and Baileys, performed strongly.
In East Africa, beer grew 11%, driven by the performance of Senator, Tusker and Guinness and international spirits delivered double-digit net sales growth, led by Johnnie Walker up 38% and Smirnoff up 24%.
The good performance in the African Regional Markets was driven by excellent growth in spirits, led by Johnnie Walker, and solid growth in beer. Strong growth of Johnnie Walker and Smirnoff, up 33% and 36% respectively, drove double-digit net sales growth in South Africa.
AFRICA
We continued to deliver strong double-digit growth in the faster growing markets of Asia, driven by solid volume growth and the continued premiumisation of our portfolio leading to 28% net sales growth of super premium scotch. However, the contraction of the whisky market in Korea has impacted the overall results and therefore net sales growth in the region for the first half was 6%.
In South East Asia, Johnnie Walker gained further market share and grew 27% net sales on the back of the successful Double Black and Platinum 18 year old launches and the Johnnie Walker Voyager programme.
In China, net sales were up 16% with reserve brands growing 59% as super premium scotch continued to gain share, driven by Johnnie Walker Blue Label, Gold Label Reserve and John Walker & Sons Odyssey and direct sales from the two Johnnie Walker Houses.
Weakness of the vodka category and a reduction in the stock in trade led to a 5% decline in net sales in India. Although Smirnoff’s performance was impacted significantly, the brand extended its leadership position. This was supported by the successful launches of Smirnoff Espresso and Smirnoff Gold, and the ‘Smirnoff Nightlife Exchange’ and ‘Signature Serve’ programmes. Johnnie Walker Black Label and Red Label grew strongly.
Diageo Global Travel Asia & Middle East remained strong, posting 16% sales growth on the back of innovations launched in the first half. The Johnnie Walker super premium portfolio increased net sales 41% in Global Travel Asia, supported by the successful launch of the travel retail exclusive Johnnie Walker Blue Label, The Casks Edition and Explorer’s Club Collection.
ASIA PACIFIC
Faster growing markets are 42% of Diageo’s business in the half and delivered organic net sales growth of 14% and operating profit growth of 21%.
During the first half we announced agreements to acquire a stake in United Spirits Ltd, the leading spirits company in India. If completed, this transaction will further strengthen our position as the leading premium drinks company in Asia Pacific.
Enhancing our route to market in fast growing economies is at the heart of our acquisition strategy and we have made five important acquisitions in the last two years. In Brazil, the integration of Ypióca is delivering share gains and purchasing synergies. This is the first year we will consolidate the results of Sichuan Shuijingfang Co. Ltd. in China which contributed almost £50 million to Asia’s reported net sales in the six months ended 31 December 2012.
FASTER GROWING MARKETS
Latin America and Caribbean has delivered another six months of strong efficient growth, increasing net sales by 18%. We have continued to extend the business outside of scotch, with notable success in vodka helping to grow our business with emerging middle class consumers.
In Brazil, the business remains robust driven by the continued growth of scotch. Investment in strategic brands was increased, led by campaigns on Smirnoff and Johnnie Walker.
In Venezuela and Colombia, performance was driven by 39% growth across the scotch portfolio, continued premiumisation, price increases and innovation. Outside of scotch, rum grew net sales 37% and vodka 32%.
In Mexico, strong net sales growth of 21% was also driven by scotch with Johnnie Walker increasing net sales 28% and Buchanan’s 19%. In West LAC, Old Parr and Buchanan’s grew net sales 50% and 43% respectively on the back of the ‘Life from a Different Perspective’ and ‘Mark Your Difference’ campaigns.
LATIN AMERICA AND CARIBBEAN
Diageo is proud to produce some of the world’s leading brands across total beverage alcohol – spirits, beer and wine. Our range includes eight of the top 20 and 17 of the top 100 premium spirits brands worldwide*. Effective marketing platforms and innovation are key to driving growth in both developed and faster growing markets.
We continued to invest behind our brands with industry leading marketing to support top line growth. In the six months ending 31 December 2012, marketing investment was up 5% on an organic basis, focused on the faster growing markets.
We focus our marketing investment in areas that we believe will deliver the best long term returns:
• Marketing innovation – changing the way we engage with consumers through pioneering marketing in the digital and entertainment space.
• Reachingouttonew consumer groups – ensuring our messages are inclusive and resonate with a broader range of consumers such as the 50+, multicultural populations and women.
• Broadeningourrange of price points, both at the value and super premium end to reach the growing number and rising incomes of middle class consumers in the faster growing markets.
• Continuingtobuildourbrandsinfaster growing markets – by effectively tailoring our campaigns with locally relevant content.
• Product innovation allows us to access key growth trends through premiumising our brands, unlocking growth in developed markets, providing premium products at affordable prices to tap into the new middle class consumer and reaching the underserved female consumers.
BUILDING EVEN STRONGER BRANDS THROUGH MARKETING AND INNOVATION
*Source: Impact Databank February 2012
(Six months ended 31 December 2012)
Whisk(e)y represents over a third of Diageo net sales with scotch accounting for 81% of total category growth. Scotch delivered a strong performance, with net sales up 10% and 6 percentage points of positive price/mix driven by premium and above brands in faster growing markets. Johnnie Walker again delivered double digit net sales growth, led by premium and above variants while marketing spend increased 13% behind the launch of the new global advertising campaign, ‘Where Flavour is King’. This campaign is aimed at making Johnnie Walker more appealing to a broader range of consumers.
Vodka accounts for 12% of Diageo net sales and delivered 7% net sales growth in this first half. Performance in the category was again driven by super and ultra premium variants, with Cîroc and Ketel One vodka accounting for almost two-thirds of vodka growth. Smirnoff also continued to grow with net sales up 4%, supported by the new ‘Smirnoff Red Door’ advertising campaign, and the success of the launch of Kissed Caramel and Iced Cake in North America.
Rum represents 6% of Diageo net sales and grew 5% in the half. Growth was driven by Captain Morgan, up 7% net sales, which benefited from the continued success of the ‘Life, Love & Loot’ campaign in North America. Zacapa delivered another strong performance led by faster growing markets, notably Latin America and Caribbean which accounted for over half of net sales growth for the brand.
Liqueurs, 6% of Diageo net sales, grew 1%. Baileys net sales declined in Western Europe, but the brand grew well in North America, Asia Pacific and Africa.
Gin, which accounts for 3% of Diageo net sales, grew 5%. Gordon’s, which represents nearly 50% of Diageo gin net sales, grew 4% globally as strong double
digit growth in South East Asia, Russia Eastern Europe, Turkey, Andean and all markets in Africa, offset a decline in Western Europe. Tanqueray’s net sales increased 8%, driven by North America and the ‘Tonight we Tanqueray’ campaign.
Beer, 19% of Diageo net sales, delivered 1% growth driven by faster growing markets, where a 5% net sales increase offset a 3% decline in developed markets.
Reserve net sales were up 18%. In North America, reserve brands delivered double-digit growth again, with continued strong performance from Ketel One Vodka and Cîroc, Don Julio, Bulleit Bourbon and the super premium variants of Johnnie Walker. In China, reserve brands grew 59% as super premium scotch continued to gain share, driven by Johnnie Walker Blue, Gold Label Reserve and Odyssey and also the direct sales from the two Johnnie Walker Houses in Shanghai and Beijing.
Premium local spirits: All our acquisitions follow the same model: great local brands which are growing through premiumisation, and access to enhanced routes to market for our international brand portfolio.
In the last two years, we have made five important acquisitions in the faster growing markets: Shuijingfang in China, Ypióca in Brazil, Meta Abo in Ethiopia, Halico in Vietnam and Mey İçki in Turkey.
The biggest was Mey İçki, the leading spirits company in Turkey. We are already seeing the impact on our international spirits brands of Mey’s advantaged distribution channel.
During the first half we announced agreements to acquire a stake in United Spirits Ltd, the leading spirits company in India.
CATEGORY OVERVIEW
ACCELERATING GROWTH IN FASTER GROWING MARKETS
• Premiumising our offer to the luxury consumer:
Building on the success of our first Johnnie Walker House in Shanghai, we recently opened a second house in Beijing which provides the ultimate luxury space for high net worth Chinese consumers. The House concept has been our most successful experiment in marketing and commercial innovation in Asia to date. In September we also launched John Walker & Sons Voyager, a luxury yacht, commemorating the journey of the Walker family business from Scotland to the four corners of the world.
• Tailoring and extending our offer to the emerging middle class consumer:
We are looking at new ways to bring a premium branded offer to the next tier of emerging middle class consumers. In Africa, we have introduced Johnnie Walker to approximately 10 million new consumers since F10. That consumer reach has been extended by the ‘Step Up’ campaign, where we focused on recruiting consumers from premium beer with a three-pronged strategy, including the implementation of ‘within reach pricing’ with a 20cl format resulting in improved distribution.
FOURTEEN STRATEGIC BRANDS (volumes for 12 months to 31 Dec 2012, excl. RTDs / top markets for six months ended 31 Dec 2012)
BRAND CATEGORY VOLUME (9-LITRE EQUIVALENT CASES) TOP MARKETS (NET SALES)
JOHNNIE WALKER Scotch whisky
No.1 Scotch whisky in the world* 19.7 million
United States BrazilMexicoThailandGlobal Travel AsiaChinaSouth Africa
CROWN ROYAL Canadian whisky
No.1 Canadian whisky in the world** 5.2 million
United StatesCanada
J&B Scotch whisky
No.5 Scotch whisky in the world* 4.2 million
SpainFranceSouth AfricaUnited StatesTurkeyPortugal
BUCHANAN’S Scotch whisky
No.2 Premium Scotch whisky in Latin America* 1.9 million
VenezuelaMexicoUnited StatesColombia
WINDSOR Scotch whisky
No.1 Super premium whisky in Asia Pacific* 0.8 million
KoreaChina
BUSHMILLS Irish whiskey Distilled at Ireland’s oldest working distillery 0.7 million
United StatesIrelandRussiaBulgariaFrance Great Britain
SMIRNOFF Vodka No.1 Premium vodka in the world** 26.3 million
United StatesGreat BritainCanadaBrazil South AfricaAustraliaIreland
KETEL ONE Vodka No.2 Super premium vodka in the United States*** 2.4 million
United StatesCanadaBrazilGreat Britain
CÎROC Vodka No.2 Ultra Premium vodka in the world* 2.2 million
United StatesBrazil
CAPTAIN MORGAN Rum No. 2 Brand in the rum category in the world** 10 million
United StatesCanadaGreat BritainGermanySouth Africa Russia
BAILEYS Liqueur No.1 Liqueur in the world** 6.5 million
United StatesGreat BritainCanadaGermanyRussiaItaly
JOSE CUERVO Tequila No.1 Premium tequila in the world** 3.8 million
United StatesCanadaGreat BritainAustralia SpainGreece
TANQUERAY Gin No.1 Imported gin in the United States**** 2.1 million
United StatesSpainCanadaGreat BritainAustraliaJapan
GUINNESS Beer No.1 Stout in the world***** 11 million
NigeriaIrelandGreat BritainUnited StatesIndonesiaCameroon
Diageo plc, Lakeside Drive, Park Royal, London, NW10 7HQ Tel +44 (0)20 8978 6000, www.diageo.com For more information please contact: [email protected]
Before making any investment decision with respect to Diageo’s ordinary shares, investors are directed to Diageo’s Annual Report for the year ended 30 June 2012 including an explanation of organic measures used in the document and a section on ‘Risk Factors’ that could impact the business. The Annual Report and additional information about Diageo can be found at www.diageo.com. The reader should consult any additional disclosures Diageo may make in documents it files with the United States Securities and Exchange Commission. Diageo does not undertake to update any information herein.
*IWSR; **Impact Databank; ***IRI; ****Adams Market Research Alcohol Beverage Industry; *****Plato Logic