Sustainable local development is good for business. It increases the likelihood that suppliers and customers will provide high quality goods and services, and that consumers worldwide will choose our products. This in turn builds a business that is both inherently inclusive and attractive to investors.
We have a commercial, strategic and ethical interest in contributing to sustainable local development. Our aspiration is to support our communities through our operations, investment, community projects and stakeholder partnerships. We do so by:
- Providing local jobs
- Building local talent and leadership
- Fostering an enterprise culture throughout our value chain
- Sourcing whenever possible from local businesses
- Maintaining high standards of governance
- Addressing local concerns through community investment programmes
- Paying local duties and taxes
- Creating wealth for shareholders on local stock exchanges.
While this impact is worldwide, is it particularly important in emerging markets1 which now represent just over a third of our business. In these markets, we work to contribute to the UN’s Millennium Development Goals to combat poverty and help build sustainable communities. We do this by engaging low-income segments where possible through employment and collaborating with local suppliers and service providers to help them increase their own business efficiencies. This is what we call an ‘inclusive business model’ – finding constructive ways to engage our local stakeholders in our value chain.
Stakeholder engagement and collective action
Of course, governments and other stakeholders have a major influence on local social and economic stability. So a key piece of our strategy is to work collectively with local governments, businesses, industry groups and other organisations on issues of mutual concern, such as water and alcohol policy. For example, in February 2011, Guinness Cameroun led an initiative to establish the Business Coalition against Corruption in Cameroon. The group consists of private companies and public sector organisations, working in partnership with Transparency International (TI) and the Cameroon government, to create the stability necessary for enterprise growth. Read more.
Our economic contribution
There are many ways in which our business adds economic value. The cash value added diagram below illustrates our total cash contribution to the global economy and how our revenue flows to many stakeholder groups in our value chain.
|Cash value added statement (£m)
* Represents procurement budget as explained in Our suppliers. Cost of goods sold, advertising and promotion and other operating expenses (excluding categories further broken out in the cash value added statement) totals £5,422m (2010 £5,602m).
Every year, our tax contribution accounts for a significant proportion of the value we contribute to economies around the world. Our tax footprint is made up of direct and indirect tax payments. Direct taxes include corporation tax, local business taxes and excise duties on our sales, as well as other sales taxes such as VAT. Indirect taxes include, for example the payment of income and corporate taxes by our employees and suppliers. Read more.
We buy raw materials, packaging materials, logistics and transportation, marketing materials, advertising and information services and business support from approximately 30,000 suppliers. Where possible and economically appropriate, we source locally to support local farmers, communities and economies. In Africa, we aim to source 65% of our raw materials from the region by 2015. At the moment, we work with approximately 100,000 farmers across the continent and source 57% of our raw materials locally. Read more.
3. Retained for growth
We are always looking for opportunities that fit with our business – whether new innovation, new partnerships or new acquisitions. These opportunities for growth not only benefit us as a company but also the economies in which we do business. This year we made a number of acquisitions of brands, distribution rights and equity interests in premium drinks businesses, particularly in emerging markets such as Tanzania, Vietnam, Guatemala, China, Kenya and Turkey. Read more about changes to our business this year.
Recruiting, developing and retaining local talent is one of the more direct ways in which we can help develop local communities. We are committed to reflecting the diversity of all our local populations in our leadership teams and consider the long-term welfare of our employees in structuring benefits packages. Read more.
We work hard to add long-term value for shareholders and are pleased to report that our total shareholder return continues to outperform the FTSE 100. Diageo is committed to a sustainable and progressive dividend policy and this year recommended a further 6% increase in the annual dividend paid to shareholders. Diageo strongly believes in the value of its employees sharing in the company’s success and actively encourages employees to become shareholders. As at 30 June 2011, 16,057 past and present employees held 1.17% (2010 – 0.74%) of Diageo’s ordinary issued share capital. For more information see our 2011 Annual Report.
In addition to being listed on both the London Stock Exchange and the New York Stock Exchange, Diageo owns stakes in companies in various parts of the world that are listed on local stock exchanges including Guinness Nigeria, East Africa Breweries, Guinness Ghana Breweries, Seychelles Breweries and Red Stripe Company in Jamaica, This is another important catalyst for wealth creation in emerging markets.
Diageo is an active borrower in global debt capital markets. Investing in Diageo debt instruments allows investors to achieve attractive yields, while their capital is guaranteed by our strong cash flow generation and sound business model. For more information see our 2011 Annual Report.
7. Community investment
We invested about £28 million this year in community development that aimed to address local interest and need. Of this, the Diageo Foundation contributed £1.1m. In total, this amounts to 1.1% of our operating profit excluding exceptional items. Read more about our approach to community investment, and what our areas of focus were this year.
8. Research and development
Regionally-focused innovation can also help create local jobs and support local communities. For example, this year Diageo unveiled its first locally-produced innovation in Russia – a super-premium vodka, Smirnov Titul. Smirnov Titul will be produced in Saint Petersburg at our Ladoga site in accordance with Diageo’s highest quality standards.