Power of PepsiCo Hugh J
ohnston Chief Financial Officer, PepsiCo Zein Abdalla Chief Execu7ve Officer, PepsiCo Europe
Safe Harbor Statement of Terms and Non-­‐GAAP Informa@on Safe Harbor Statement Statements in this communica/on that are "forward-­‐looking statements" are based on currently available informa/on, opera/ng plans and projec/ons about future events and trends. They inherently involve risks and uncertain/es that could cause actual results to differ materially from those predicted in such forward-­‐looking statements. Such risks and uncertain/es include, but are not limited to: changes in demand for PepsiCo s products, as a result of changes in consumer preferences and tastes or otherwise; damage to PepsiCo s reputa/on; PepsiCo s ability to grow its business in developing and emerging markets or unstable poli/cal condi/ons, civil unrest or other developments and risks in the countries where PepsiCo operates; trade consolida/on or the loss of any key customer; changes in the legal and regulatory environment; PepsiCo s ability to build and sustain proper informa/on technology infrastructure, successfully implement its ongoing business transforma/on ini/a/ve or outsource certain func/ons effec/vely; unfavorable economic condi/ons in the countries in which PepsiCo operates; fluctua/ons in foreign exchange rates; PepsiCo s ability to compete effec/vely; increased costs, disrup/on of supply or shortages of raw materials and other supplies; disrup/on of PepsiCo s supply chain; climate change, or legal, regulatory or market measures to address climate change; PepsiCo s ability to hire or retain key employees or a highly skilled and diverse workforce; failure to successfully renew collec/ve bargaining agreements or strikes or work stoppages; and failure to successfully complete or integrate acquisi/ons and joint ventures into PepsiCo s exis/ng opera/ons. For addi/onal informa/on on these and other factors that could cause PepsiCo s actual results to materially differ from those set forth herein, please see PepsiCo s filings with the SEC, including its most recent annual report on Form 10-­‐K and subsequent reports on Forms 10-­‐Q and 8-­‐K. Investors are cau/oned not to place undue reliance on any such forward-­‐looking statements, which speak only as of the date they are made. PepsiCo undertakes no obliga/on to update any forward-­‐looking statements, whether as a result of new informa/on, future events or otherwise. Non-­‐GAAP Informa@on Unless otherwise indicated herein, all references to EPS growth and division and total opera/ng profit growth in this slide presenta/on are on a core constant currency basis. In addi/on, all comparisons are on a year-­‐over-­‐year basis unless otherwise noted. Please refer to the Investors sec/on of PepsiCo s website at www.pepsico.com under the headings Investor Presenta/ons and SEC Filings to find disclosure and a reconcilia/on of any Non-­‐GAAP financial measures contained herein. 2 PepsiCo evolu@on: 2000 – 2005 Net Revenue – $B* 5-­‐year CAGR 10% 32.1 20.1
2000 2005 2010 * The above is a Non-­‐GAAP financial measure that excludes certain items. Please refer to the "Consumer Analyst Group of New York Conference" GAAP/Non-­‐GAAP Reconcilia/on a[achment posted on February 24, 2011 under the "Investors -­‐ Investor Presenta/ons sec/on on PepsiCo s website at www.pepsico.com to find disclosure and a reconcilia/on of the above non-­‐GAAP financial measure 3 Delivered strong financial performance 5-­‐Year Performance CAGR* 2000 – 2005 10% 12% 13% 13% 10% Total 5 Year Cash Returned to Shareholders $18B Core Net Revenue Core Opera@ng Profit Core EPS Management Opera@ng Cash Flow Dividend/ Share * The above, except for dividends per share, are Non-­‐GAAP financial measures that exclude certain items. Please refer to the "Consumer Analyst Group of New York Conference" GAAP/ Non-­‐GAAP Reconcilia/on a[achment posted on February 24, 2011 under the "Investors -­‐ Investor Presenta/ons sec/on on PepsiCo s website at www.pepsico.com to find disclosure and a reconcilia/on of the above non-­‐GAAP financial measures 4 PepsiCo evolu@on: 2000 – 2010 Net Revenue – $B* 5-­‐year CAGR 12% 57.8 5-­‐year CAGR 10% 32.1 20.1
2000 2005 2010 * The above 2000 and 2005 amounts are Non-­‐GAAP financial measures that exclude certain items. Please refer to the "Consumer Analyst Group of New York Conference" GAAP/Non-­‐GAAP Reconcilia/on a[achment posted on February 24, 2011 under the "Investors -­‐ Investor Presenta/ons sec/on on PepsiCo s website at www.pepsico.com to find disclosure and a reconcilia/on of the above non-­‐GAAP financial measures 5 Con@nued strong financial performance 5-­‐Year Performance CAGR* 2005 – 2010 12% 13% 10% 9% 8% Total 5 Year Cash Returned to Shareholders $29B Core Net Revenue Core Opera@ng Profit Core EPS Management Opera@ng Cash Flow Dividend/ Share * The above, except for dividends per share, are Non-­‐GAAP financial measures that exclude certain items. Please refer to the "Consumer Analyst Group of New York Conference" GAAP/ Non-­‐GAAP Reconcilia/on a[achment posted on February 24, 2011 under the "Investors -­‐ Investor Presenta/ons sec/on on PepsiCo s website at www.pepsico.com to find disclosure and a reconcilia/on of the above non-­‐GAAP financial measures 6 Shaping PepsiCo Net Revenue Mix – % Interna@onal Emerging Markets 44 30 2000 21 2010* 2005 31 2010* 7 * 2010 includes pro forma bo[lers and Wimm Bill Dann Por_olio transforma@on 2000: Revenue $20B Snacks 2010: Revenue $62B* Snacks 63% 26% Beverages Good-­‐For-­‐You 11% Good-­‐For-­‐You 11% 43% 36% Beverages 44% Good-­‐For-­‐You 21% 21% 8 * 2010 includes pro forma bo[lers and Wimm Bill Dann Our framework for growth 1 Build and extend our macrosnacks por_olio 2 Sustainably and profitably grow our beverage business 3 Unleash the Power of Power of One 4 Build and expand our nutri@on businesses 5 Ensure prudent, responsible financial management 9 Financial objec@ves Objec@ve Net Revenue Growth EBIT Growth Returns Our Ac@ons •  Grow in aggregate faster than categories growth •  Hold or grow share in key developed markets •  Invest to gain share in key emerging markets •  Accelerate nutri/on growth •  Grow ahead of net revenue: •  Stepped-­‐up produc/vity •  Flexibility to deal with compe//on and vola/lity •  Shareholder cash returns a priority •  Disciplined cash reinvestment in capex and acquisi/on •  Maintain prudent capital structure –  Price/mix and produc/vity –  Par/ally offset by market mix, investments 10 Con@nued investment in growth •  Incremental investments in brand building and emerging market infrastructure –  Stepped up A&M, par/cularly in global beverages –  S&D to add capacity ahead of growth in emerging markets •  Judicious investments behind nutri/on 11 Commodi@es management •  Commodi/es costs ~ 30% of net revenue •  PepsiCo philosophy is to hedge 6 – 12 months out with differences driven by market structure not market condi/ons •  Only 70-­‐80% of commodity costs are hedgeable but trend is increasing •  Over /me, we expect to be able to price in line with infla/on, but certain years may vary 12 Financial Objec@ves Long Term Goal MSD Core Constant Currency Net Revenue Growth 2011 Guidance •  Organic Growth In line with LT Goal •  7-­‐8%* Growth HSD Core Constant Currency EPS Growth MOCF Growth In Line With Net Income Growth (Rolling Three Years) +
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Bo[ler Acquisi/on Synergies WBD Accre/on Pricing/Produc/vity $2.5B Share Repurchase Extraordinary Infla/on Investments •  Mul/-­‐year goal only * 2011 net revenue on a 52 week core constant currency pro forma basis including bo[lers and excluding Wimm Bill Dann. EPS on a core constant currency basis from the company s fiscal 2010 core EPS of $4.13. Please refer to the "Consumer Analyst Group of New York Conference" GAAP/Non-­‐GAAP Reconcilia/on a[achment posted on February 24, 2011 under the "Investors -­‐ Investor Presenta/ons sec/on on PepsiCo s website and the "Report of unscheduled material events or corporate event" PDF a[achment posted on March 30, 2011 under the "Investors – SEC Filings sec/on on PepsiCo s website at www.pepsico.com to find disclosure and a reconcilia/on of the above non-­‐GAAP financial measures 13 Take-­‐aways •  PepsiCo has evolved into a global, powerful snack and beverage porpolio •  We have delivered top /er opera/ng and financial performance along the way •  Our cash returns to shareholders have been strong and accelera/ng •  PepsiCo s porpolio is poised for con/nued top /er opera/ng and financial performance, and excellent cash returns 14 Zein Abdalla Chief Execu/ve Officer PepsiCo Europe PepsiCo Europe Key Takeaways •  Broad based food and beverages porpolio posi/oned for growth •  Delivering peer leading financial performance •  Advantaged set of business models •  Building porpolio capabili/es for PepsiCo •  Wimm Bill Dann acquisi/on is transforma/onal for PepsiCo and PepsiCo Europe 16 PepsiCo Europe covers 890 Million consumers, across a diverse range of economies GDP/Capita >$20K GDP/Capita $10 to $20K GDP/Capita <$10K 17 Source: CIA World Factbook (2010E) We are one of Europe's top five Food and Beverage companies Posi@oned to grow in Eastern Europe Scale in Snacks and Beverages 2010: Revenue $12B* 2010: Revenue $12B* East Snacks 57% 35% 43% 17% West 20% 28% CSDs NCBs Dairy 18 * 2010 Includes Proforma Bo[lers and Wimm Bill Dann / Excludes South Africa Snacks Business (part of PepsiCo Europe as of 2011) Powerful, diverse por_olio in sweet spot of convenient Food and Beverages in Europe #2 CSDs #1 Snacks Savoury Social B everages #1 Juices Source: Euromonitor 2010, AC Nielsen Nutri1on #1 Snacks 19 Strength and breadth of our por_olio enabled us to successfully navigate economic headwinds Europe 2010 Performance* 27% 10% 2% 5% Organic Snacks Beverages Volume Division Opera/ng Profit * The above core constant currency results are Non-­‐GAAP financial measures that exclude certain items. Please refer to the "Report of unscheduled material events or corporate event" PDF a[achment posted on March 18, 2011 under the "Investors – SEC Filings sec/on on PepsiCo s website at www.pepsico.com to find disclosure and a reconcilia/on of the above non-­‐GAAP financial measures. 20 1 ‘Flavour Cup’ Differen@ated • Walkers • DUAF Roll-­‐out Value • ‘Football’ Win 2 Revenue Management • Consumer segmenta/on • Occasion/pack/pricing 3 Strong Cost Control • Produc/vity • Procurement Result By focusing on three performance drivers Superior Financial Performance • Top line revenue accre/on • Margin expansion • Cash flow genera/on 21 Our framework for growth 1 Build and extend our macrosnacks por_olio 2 Sustainably and profitably grow our beverage business 3 Build and expand our nutri@on businesses 4 Unleash the Power of Power of One 5 Ensure prudent, responsible financial management 22 We have built the largest savoury snack business in Europe Core salty share (value) $4.3B 2010 Net Revenue SOM < 20% SOM 20% – 40% SOM > 40% #1 #1 #1 #1 #2 #1 #1 Source: 2010 AC Nielsen, IRI, Internal Data. Excludes South Africa #1 #2 #1 #1 #1 #1 #1 #1 #1 #2 #2 #1 #1 #2 23 Based on an advantaged business system Global brands… local relevance 24 Based on an advantaged business system Go-­‐to-­‐Market OT DSD Distributors •  We reach over 1.2 million accounts •  More than 8,000 exclusive DSD routes across Europe 25 Based on an advantaged business system Seed to Shelf 26 Massive growth poten@al in Snacks Significant growth opportuni@es in savory snacks Growing per caps in East Europe (kg Per Capita) 05-­‐09 CAGR 05-­‐09 CAGR OPPORTUNITY 7% 2% 3.5 1 East Europe West Europe PepsiCo volume share 9.1 USA Occasions opportunity Meal replacement/ accompaniment 20% % PE 4% Salty $10B Source: AC Nielsen 2009 / Internal Company Data Nuts and seeds Salty biscuits Other S@cks pretzels Crispbreads Breads@cks $8B 50% Sensible in-­‐between % PE: 5% 30% Treat % PE: 91% 27 Across Europe we are extending our leadership through re-­‐staging the core Increasing Local Relevance Improving H&W Going Natural and Local Bri@sh Potato Home Grown Irresis@bility Salt Reduc@on No ar@ficials 28 Capturing Indulgence and New Occasions 29 We are expanding into BFY space Oven Baked Grain-­‐based snacks Nuts & Seeds Bread Snacks & Crackers 30 A Savoury Snack Powerhouse Primed for Growth •  #1 in Europe – Advantaged business model •  Poten/al to deliver strong top-­‐line growth –  Innova/on to capture new occasions and cohort groups –  Growing per caps in Eastern Europe •  Poten/al for margin expansion –  Strong Revenue Management –  Scale leverage and transforma/onal produc/vity 31 Our framework for growth 1 Build and extend our macrosnacks por_olio 2 Sustainably and profitably grow our beverage business 3 Build and expand our nutri@on businesses 4 Unleash the Power of Power of One 5 Ensure prudent, responsible financial management 32 Powerful and Diversified LRB por_olio across Europe #1 #2 #1 Juices CSDs RTD Tea 33 Beverage growth strategy A differen@ated strategy targe@ng growth areas Build Europe's #1 fruit & veggie business Structural enablers Lowest cost supply chain Strengthen Tea leadership Fully leverage go-­‐to-­‐market system Refresh sparkling Power of One 34 Integra@on of PBG/PAS transformed our scale… Company Owned PBG PAS Independent Hungary 35 … and posi@ons us in the sweet-­‐spot of Beverages category growth Eastern Europe growing LRB faster than the West… West Europe 5x Posi@oned to grow… 2010 Europe Beverages Net Revenue* West 34% East Europe 66% East NCB growing faster than CSD… CSD NCB (Ex Water) Source: Canadean 2005 – 2010 Volume growth * 2010 Includes Proforma Bo[lers and Wimm Bill Dann CSDs 2x 34% NCBs 66% Juice 34% Tea /Other 13% Dairy 19% 36 A Beverage por_olio in the sweet spot of growth •  Porpolio focused on growth –  Total LRB focus –  Balanced exposure to East and West Europe •  Op/mized Power of One Supply Chain •  Power of One GTM system •  Margin expansion and investment poten/al Bigger, Leaner & More Agile 37 Our framework for growth 1 Build and extend our macrosnacks por_olio 2 Sustainably and profitably grow our beverage business 3 Build and expand our nutri@on businesses 4 Unleash the Power of Power of One 5 Ensure prudent, responsible financial management 38 Nutri@on: In Europe we are well posi@oned to leverage opportuni@es in 3 key segments and Fruits Vegetables Whole Grains Dairy 39 We have a clear vision for an advantaged global F&V pla_orm Premier #1 Juice Business in Europe Million case equivalents ~460 …with significant room for growth • Growing per caps in Eastern Europe • Expanding usage in core occasions 6 Year CAGR Total +44% Base + 15% • New occasions 52 Base 2004 Source: Internal Company Data 2010 Proforma including Wimm Bill Dann 2010* • New need states 40 Grains opportunity Reinforcing our posi@on in breakfast Convenience to a nutri@ous breakfast Innova@on: Move to grain snacks, new occasions 41 Our framework for growth 1 Build and extend our macrosnacks por_olio 2 Sustainably and profitably grow our beverage business 3 Build and expand our nutri@on businesses 4 Unleash the Power of Power of One 5 Ensure prudent, responsible financial management 42 Russia is a big opportunity in every sense of the word >55k 25k – 55k Exploding income Savoury Snacks Consump@on %HH Annual Disposable Income ($PPP) 2% 6% Kg/capita <25k 26% 92% 2001 66% 2010 9.1 36% 42% 22% 2015E 1.0 East Europe 3.5 West Europe th largest economy in the world (ppp) §  7Dairy LRB Consump@on Opportunity §  CPG m
arket expected to surpass Germany (Litre/capita) by 2020 Kg/capita §  World 15.1 s second biggest oil reserves 6.3 3.7 East Europe West Europe USA Source: Company Filings and CapIQ, Canadean, Internal Data 2009 FY, Euromonitor 2010 248 USA 359 119 East Europe West Europe USA 43 PepsiCo has a long history in Russia… 1959 Nikita Sergeyevich Khruschev, the Premier of Soviet Union enjoys his first Pepsi at the American Na@onal Exhibi@on in Moscow 44 A powerful business with leading posi@ons Lead NCB development #1 RTD Tea #1 Energy Drink #1 Water Advantaged snack business Lead juice #1 Macrosnack Agro program Po1 distribu@on Local Relevance A Russian business run with PepsiCo management standards 45 WBD transforms our scale to create the #1 F&B business in Russia… 2009 Net Sales – Russia From $1.2Bn to $4.1 10 of Top 20 F&B Brands Top Russian Brands > $150 in Net revenue 2x Incl. Wrigley and Korkunov Incl. Multon and Nidan Incl. Bolshevik and Dirol-­‐Cadbury 46 Source: Expert RA, 2009 Source: AC Nielsen 2009 – Na/onal Russia /Non-­‐Alcohol / Internal Es/mates …and is an atrac@ve business opportunity Atrac@ve Category §  Dairy: High single digit growth §  Value-­‐added dairy: Double digit §  Opportunity to advance PepsiCo’s Global Dairy Strategy §  Importance to GNG Great Business §  #1 F&B Business in Russia §  Successful and proven track record §  Strong brand por_olio & innova@on Robust business processes & talent pool Great Market §  Very atrac@ve growth market §  Gateway to 400 million+ consumers §  R&D Hub Add Value §  Atrac@ve Synergies §  Significant power of one opportuni@es 47 Clear strategy to leverage our leadership posi@on and accelerate growth Premier Snackable Foods Business #1 in Beverages #1 in Dairy Advantaged Power of One Business Model #1 in Savory #1 in Juice #1 in Dairy Localized Inputs Enter New Growth Pla_orms #1 in Tea Value-­‐added Growth Pla_orms Integrated Logis@cs, Back office, Produc@on Superior Beverage Capability Unparalleled GTM Systems World class team 48 Supported by Power of One accelera@on 1 Expanded DSD coverage 2 47 Ci@es 29 Ci@es 150 Thousand From To From Areas with direct sales coverage 3 Distributor consolida@on 2008 2012 DSD penetra@on in smaller accounts 200 Thousand To # of accounts with direct sales coverage 4 In-­‐store execu@on 500+ <50 •  Po1 consolida@ons •  Scale distributors able to invest in infrastructure/systems Source: Internal Company Data / Mars and Co. Study 49 F&B powerhouse in Eastern Europe. Gateway to more than 400 million consumers Poland Ukraine Belarus Russian Federa@on Kazakhstan 50 Key Takeaways PepsiCo Europe •  Broad based food and beverages porpolio posi/oned for growth •  Delivering peer leading financial performance •  Advantaged set of business models •  Building porpolio capabili/es for Europe •  Wimm Bill Dann acquisi/on is transforma/onal for PepsiCo and PepsiCo Europe A Diverse Team of Talented People 51