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Chief executive’s introduction

This has been a year of progress for Diageo. Our business is strong and becoming stronger. We are on track with the majority of our sustainability and responsibility targets. We have also instituted a significant reorganisation of the business, and our new configuration reflects our strategic focus on high-growth opportunities in traditional and emerging markets.

CEO intro

Supporting our commercial strategy

Creating value for shareholders must be a principal concern of any business. At Diageo, we also recognise that our business must be sustainable in every sense – an important pre-condition for our commercial success.

Our financial results for the year ended
30 June 2011 illustrate that we have delivered performance that is both successful and enduring. For the tenth consecutive year we grew our organic top and bottom lines. Our net sales were over £9.9 billion, and we had an operating profit of £2.6 billion1. We continued to deliver operating margin improvement.

 

Sustainability performance: a driver of growth

This performance demonstrates an inherent strength in our business and a sustainable model for value creation. A large part of our success is based on our financial strength, on the diversity offered by the 180 markets around the world in which we operate, and on our wonderful collection of brands. Moreover, a very strong supply chain and effective routes to market both contribute to our ability to grow.

Nonetheless, I am sure that our focus on the social and environmental impacts of the business gives us a competitive edge. Since 2004 we have described this as ‘holistic performance’. By this we mean that success as a company is determined by more than simply the achievement of financial targets.

Diageo does not operate in a vacuum. To succeed, we require the goodwill and support of a multitude of stakeholders, ranging from our investors and employees to the governments of and communities in the locations in which we operate. We are determined to be consistent, long-term in outlook, and true to our values. We believe that this is the key to maintaining the trust and confidence of all those stakeholders. We want excellent relationships with them all because that offers us the best environment for our business to thrive, and because it is the right thing to do.

There are other important measures. They include our culture and the way in which we treat our people. They include the way we live our values and our business conduct – in particular compliance with our Code of Business Conduct and operating in a wholly ethical way everywhere. They also include our commitment to being a good corporate citizen. All these are also drivers of growth.

We have pursued a strategy based on this approach. We have honoured commitments to international frameworks such as the UN Global Compact and CEO Water Mandate. We have done so in good times but also when circumstances have been more challenging – because we aim to manage our business with an eye to the long as well as to the short term. That means, for instance, being prepared to continue to make bold and innovative investments which will create a longer-term return.

 

Long-term investment in water and the environment

Our decision to build a state-of-the-art bio-energy plant at our Cameronbridge distillery in Scotland is an illustration of this point. I am proud that we did so by investing significant capital in efficient, new, green technologies for a long-term environmental gain. With a £40 million expansion programme underway, we took the opportunity to invest a further £65 million in a renewable energy facility which uniquely combines a waste water treatment plant, biomass boiler and steam and electrical generation plant.

The environmental benefits will be significant. The facility aims to remove virtually all effluent discharge from the site, provide almost a third of its water and, crucially, supply 85% of its power from a renewable source. We also hope it will remove 56,000 tonnes of carbon each year – the equivalent of taking 44,000 cars off the road.

We make such investments to preserve the resources that our company, and the communities in which we operate, rely on. As a beverage company, this is particularly true for water. We have set challenging operational targets to reduce water wasted in water-stressed regions and complement this work with programmes such as ‘Water of Life’ that has brought clean water to approximately 5 million people since its launch in 2006. I am particularly proud of the contribution of our employees to these programmes.

 

Our role as a global beverage alcohol company

As a responsible company, we want to ensure that drinking alcohol continues to play a positive role in the life of our consumers and communities. This is core to Diageo’s purpose to celebrate life every day, everywhere. We recognise that different cultures and religions have a range of views about the role of alcohol in society. This dictates that we work in partnership with stakeholders in our communities to tackle alcohol misuse. This year, in an effort to help contribute to effective policies and programmes to reduce harmful drinking, we have worked in co-operation with other companies and organisations to support the implementation of the World Health Organisation (WHO) Global Strategy to Reduce Alcohol Related Harm.

Diageo also provides employment and contributes to the economic development of the communities in which we operate. In those communities our impact comes not simply from our operations. Through our Learning for Life programme we have invested in the long-term future of local communities, helping many who might otherwise be unemployed gain valuable skills to find jobs either in the hospitality industry or beyond. Since we launched Learning for Life in 2008, more than 50,000 people have benefited.

 

Sustainability in a changing market

In the years to come there will be a shift in the balance of economic power from the developed world – principally North America and Western Europe – to the emerging markets of Africa, Latin America, Asia and those in Eastern Europe. Growth in these regions in the next decade is likely to outstrip that in the markets in which we have traditionally been strong. Very soon I expect them to represent at least half of our business.

This shift in global economic power will benefit Diageo and its stakeholders over the long term, and in May 2011 we announced a reorganisation to position ourselves and our resources to take advantage of this opportunity. In the immediate future the changes we have made will have some significant and difficult consequences for a number of our people, particularly in Western Europe and North America. We will support our employees through this change and, at the same time, build relationships with stakeholders less familiar with us. Above all our aim is to ensure that stakeholders new and old will always appreciate the value of doing business with Diageo.

Paul Walsh
Chief executive

Footnotes

1After exceptional items