Investment Proposal. Diageo plc (DEO) October 30, 2014

Transcription

1 Investment Proposal Diageo plc (DEO) October 30, 2014

2 Executive Summary Diageo s robust product portfolio and strong fundamentals make the alcohol producer a highly attractive addition to GIMG s portfolio. Diageo plc is the world s leading premium drinks business with a highly developed collection of brands across all parts of the alcohol spectrum with a presence in beer, wine, and spirits. Leading products include Guinness, Johnny Walker and Ketel One. Diageo is based in London and is well established in North America and Western Europe. The company s focus on spirits allows them to take advantage of the current shift from beer to spirits occurring in these regions. Diageo has also been able to successfully utilize its robust product portfolio to access emerging markets in both Africa and Asia. Our target price for DEO is $ based on discounted cash flow and comparables analysis. We believe the company is currently undervalued at $ We believe this discrepancy is primarily driven by a market overreaction in response to lackluster FY2014 sales. Despite last years results it is clear that Diageo remains poised to take advantage of growing global demand for spirits. 1

3 Table of Contents I. Executive Summary II. Introduction i. In the News ii. Industry Overview iii. Global Beer Market iv. Global Wine Market v. Global Spirits Market vi. Industry Distribution III. Company Summary i. Timeline ii. Company Overview iii. Diageo ADR Trading Overview iv. Geographic Mix v. Key Products IV. Valuation i. Trading Comparables ii. Transaction Comparables iii. Discounted Cash Flow Analysis iv. Valuation Ranges (Football Field) V. Recommendation i. Merits & Risks ii. Conclusion 2

4 Introduction

5 In the News Diageo Pours New Tech into Liquor Venture The world s No. 1 spirits maker is looking for new ways to use technology to boost its drinks business from smartphone connectivity to wearable personal technology. Wall Street Journal - September 8, 2014 Diageo is Targeting the African Markets with Spirits and Beer The market in Nigeria, the continent s most populous nation, will probably more than double over the same period. Growth will be driven by a large, young population and increasing urbanization that will demand branded consumer goods Bloomberg - September 30, 2014 Diageo Aiming to Recover the Whiskey Market in China Diageo s strategy in counteracting the decline in Baijiu is to introduce lower-priced versions, aimed more at private dinners and large family occasions than previously lavish state and local government banquets. Financial Times - October 16,

6 Global Revenue ($ billions) Beverage Industry Sector Breakdown $ Packaged Water Bulk Water Tea Milk & Milk Drinks Juice & Juice Drinks Iced Tea Carbonated Drinks Coffee Other Index Performance Global Market Size 100% 80% 60% 40% 20% 0% -20% S&P 500 DJUSBV A 2012A 2013A 2014E 2015E Source: Bloomberg, Capital IQ, Euromonitor, Reportlinker 5

7 Global Revenue ($ millions) Global Beer Market Growth Drivers Global Sales Preferences in North America shifting from beer to spirits Increasing competition from smaller craft beer producers in North America and Western Europe Sub-premium beer on the decline while abovepremium gains slightly Major beer brands continue to make headway in West Africa Major Players A 2012A 2013A 2014E 2015E Source: Capital IQ, Euromonitor 6

8 Global Revenue ($ millions) Global Wine Market Growth Drivers Global Sales Highly fragmented market led by the Big Three wine producers New World wine production now rivals the prestige and tradition associated with Old World producers of Europe North America is the fastest growing consumer market for wine sales Major Players A 2012A 2013A 2014E 2015E Source: Capital IQ, Duke, Euromonitor 7

9 Global Revenue ($ millions) Global Spirits Market Growth Drivers Global Sales Preferences in North America shifting from beer to spirits High levels of consolidation across product categories and price points Vodka remains fastest growing spirits category Whiskey is making consistent gains in India and East Asia Major Players A 2012A 2013A 2014E 2015E Source: Capital IQ, Euromonitor 8

10 Less Spirits More Spirits Industry Distribution Less Beer More Beer Source: Capital IQ 9

11 Company Information

12 Timeline of Major Events December 1997 Founded from merger of Guinness and Grand Metropolitan December 2000 Acquired additional wine and spirits brands from Seagram July 2002 Exits food industry to focus exclusively on premium beverage alcohol February 2008 Abandons Absolut plans in favor of Ketel One deal March 2010 Becomes majority shareholder in Chinese white spirits company February 2011 Buys Turkish liquor company maker Mey Içki in $2.1 billion deal June 2012 Decides to invest more than $1.54 billion in scotch whiskey production November 2012 Buys control of India s biggest liquor company, United Spirits Source: Company Website, New York Times, Wall Street Journal 11

13 Company Overview Company Summary Headquarters London, UK Founded December 1997 Industry Food & Beverage Sub-Industry Wineries & Distilleries Employees 28,000 as of 2014 Description Diageo plc produces and distributes a variety of premium alcoholic beverages around the world. Product Mix Spirits Beer Ready-to-Drink Wine Financial Performance 2010A 2011A 2012A 2013A 2014A Revenue 9, , , , ,258.0 Gross Margin 58.1% 59.6% 60.4% 60.9% 60.7% EBITDA Margin 30.1% 32.6% 33.5% 33.4% 36.6% EBIT Margin 26.3% 29.0% 29.7% 29.9% 30.4% Net Income 1, , , , ,248.0 Shares Outstanding (millions) 2, , , , ,506.0 EPS (all figures in millions GBP except per share data) 5-Year Trading Overview Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Source: Company Filings, Bloomberg 12

14 Diageo ADR Trading Overview 20% 15% 10% Key Statistics October 14, 2014 Current Price $ Day MA Week High Week Low Dividend Yield 2.10% May 29, 2014 Announces plans for new distillery in Kentucky Johnny Walker and Smirnoff named two of Interbrand s Best Global Brands DJUSBEV S&P 500 5% 0% -5% -10% January 30, 2014 FY2014 Semi-Annual Report; trailing estimates due to sales declines in China April 15, 2014 Offers $1.9 billion in 2 nd bid to control United Spirits July 30, 2014 FY2014 Annual Report; trailing estimates slightly -15% September 30, 2014 Chinese sales decline is less than analyst expectations -20% Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 DEO Source: Company Website, CNBC, Bloomberg, Reuters 13

15 Geographic Mix Volume Net Sales Operating Profit Africa, Eastern Latin America & North America Western Europe Europe & Turkey Caribbean Asia Pacific Financials by Region Volume Net Sales 3,444 2,169 2,075 1,144 1,347 Operating Profit 1, % Share by Region Volume Net Sales Operating Profit Source: Company Filings 14

16 Key Products Ultra Premium Scotch Whiskey Other Whiskey Vodka Rum Beer Wine Super Premium Premium Standard Value Source: Company Filings 15

17 Valuation

18 Trading Comparables Shares Enterprise EPS EBITDA EV / EBITDA P / E Company Name Ticker Exchange Share Price Outstanding Equity Value Value LTM 2015E LTM 2015E LTM 2015E LTM 2015E Constellation Brands STZ NYSE , , , , , , x 12.6x 19.6x 15.8x Brown Forman BF-B NYSE , , , , , , x 16.4x 17.5x 14.8x Pernod Ricard RI EPA , , , , , , x 12.9x 22.1x 16.6x SAB Miller SAB LON , , , , , , , x 14.3x 26.7x 20.2x AB In Bev BUD NYSE , , , , , , , x 11.2x 19.6x 18.6x Ambev ABEV NYSE , , , , , , , x 12.0x 23.0x 18.2x Median 60, , , , , , x 12.7x 20.8x 17.4x Mean 72, , , , , , x 13.2x 21.4x 17.4x Min 17, , , , , , x 11.2x 17.5x 14.8x Max 178, , , , , , x 16.4x 26.7x 20.2x Financial Information Diageo Valuation EV / EBITDA P / E Revenue 13,980 Multiple EBIT 3,108 Mean 15.8x 21.4x EBITDA 3,750 Low 13.1x 17.5x Net Income 2,181 High 20.7x 26.7x Net Debt 9,570 Implied Price / Share [DGE] Minority Interest 767 Mean Shares Outstanding 2,513 Low GBP to USD High US ADR Ratio 4:1 Implied Price / Share [DEO] Mean $ $ Low High Source: Bloomberg, FactSet 17

19 Transaction Comparables Purchase Equity Transaction Enterprise TV / TV / Percent Date Aquirer Target Consideration Value Value Value EBITDA EBIT Premium Aquiring 1/13/2014 Suntory Holdings Beam Inc Cash 13, , , x 27.3x 24.68% 100.0% 6/29/2012 Anheiser Busch Grupo Modelo SAB de CV Cash 38, , , x 20.1x 6.30% 49.7% 6/18/2012 King Holdings Co., Ltd. Little World Beverages Ltd. Cash x 26.8x 39.84% 63.8% 4/30/2010 William Grant & Sons Holdings Ltd. Spirits and Liqueurs Divison of C&C Group plc Cash x 18.6x N/A 100.0% 1/11/2010 Heineken NV FEMSA Cerveza SA Stock 7, , , x 19.8x N/A 100.0% Median 7, , , x 20.1x % Mean 12, , , x 22.5x % Minimum x 18.6x % Maximum 38, , , x 27.3x % Adjusted Mean x 23.4x - - Adjusted Low x 19.2x - - Adjusted High x 27.6x - - Financial Information Revenue 13,980 EBIT 3,108 EBITDA 3,750 Net Income 2,181 Net Debt 9,570 Minority Interest 767 Shares Outstanding 2,513 GBP to USD US ADR Ratio 4:1 Diageo Valuation TV / EBITDA TV / EBIT Multiple Mean 20.3x 23.4x Low 14.8x 19.2x High 25.8x 27.6x Implied Price / Share [DGE] Mean Low High Implied Price / Share [DEO] Mean $ $ Low High Source: Bloomberg, FactSet 18

20 Discounted Cash Flow Analysis Historical Projected Net Sales - 10, , , , ,436.9 Earnings before Interest and Taxes (EBITDA) - 3, , , , ,114.6 Earnings before Interest and Taxes (EBIT) - 3, , , , ,453.7 Earnings before Interest After Taxes (EBIAT) - 2, , , , , Depreciation & Amortization Capital Expenditures - (645.8) (649.5) (653.3) (657.1) (660.9) - Increases in Net Working Capital (NWC) - (125.2) (313.7) (283.8) (218.0) (167.0) Free Cash Flow (FCF) - 2, , , , ,596.0 Perpetuity Method Exit Multiple Method Discounted FCF Enterprise Value Net Debt Minority Interest Preferred Stock Equity Value Equity Value / Share US 4:1 ADR Discounted FCF Enterprise Value Net Debt Minority Interest Preferred Stock Equity Value Equity Value / Share US 4:1 ADR - 2, , , , ,459.6 Terminal Value: 71, ,363.0 Terminal Growth: 1.50% 9,570.0 WACC: 5.19% Shares Outstanding: 2, FX Rate: , $ , , , , ,494.5 Terminal Value: 65, ,397.9 Terminal Multiple: 15.8x 9,570.0 WACC: 5.19% Shares Outstanding: 2, FX Rate: , $127.5 Terminal Growth Rate Terminal Multiple $ % 1.45% 1.50% 1.55% 1.60% $ x 15.3x 15.8x 16.3x 16.8x 4.69% % WACC 4.94% % % WACC 4.94% % % % % Source: Bloomberg, Capital IQ, Company Filings, FactSet 19

21 Valuation Ranges (Football Field) Current Target $97.31 $ $99.09 $ $94.47 $ $85.91 $ $ $ $ $ $ $ $ $ Source: Bloomberg 20

22 Recommendation

23 Merits & Risks Diageo maintains a global presence with a highly diversified product portfolio. However, this also exposes them to a variety of risks stemming from diverse international markets. Merits Diageo holds a diversified product portfolio that includes many recognizable, high-end brands An ability to innovate around established brands (examples include Bailey s Chocolate Luxe & Smirnoff Confectionary flavors) A focus in spirits limits the Diageo s exposure to the more fragmented beer and wine industries Can take advantage of North American preference shift from beer to spirits Maintains a steady level of maturing inventories through growth cycles. These inventories are major assets and can increase future profits as the margins on these products are often much higher Risks Possible weakening demand in established North American and Western European markets Growing influence of indigenous brands in emerging markets Erosion of leading beer brands by smaller craft producers Continued declines in China due to crackdowns on extravagant spending Negative sentiment regarding alcohol consumption in some markets may slow growth Source: Capital IQ, Company Filings 22

24 Conclusion Strong Positioning Global Presence Strong presence across categories and price points gives Diageo multiple points of entry into new markets Vodka remains the fastest growing spirit with Diageo s Smirnoff leading the category (approximately twice the size of the 2 nd largest brand) Controls approximately 25% of total global whiskey market Beer brands like Guinness and Red Stripe are resistant to significant erosion by craft producers An established presence in North America and Western Europe affords Diageo a measure of stability The company s renewed focus on emerging markets will allow the company to access higher growth opportunities Strategic acquisitions of established indigenous brands used to open up new markets and market segments Experienced Management Ivan Menezes, Indian-born former COO and head of US operations for eight years, brought in to focus on lucrative emerging markets Operates as 21 geographically based offices, each with their own highly experienced management teams Skilled at adapting established local spirits businesses to distribute branded products with minimal disruption Source: Capital IQ, Demeter Group, Reuters 23

25 Disclaimer: These materials have been prepared by the Goizueta Investment Management Group. This document is for information and illustrative purposes only and does not purport to show actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only and are subject to change without notice. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not prove to be true, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those discussed, if any. No part of this document may be reproduced in any manner, in whole or in part, without the prior written permission of the Goizueta Investment Management Group, other than to your employees. This information is provided with the understanding that with respect to the material provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. The Goizueta Investment Management Group does not purport to and does not, in any fashion, provide broker/dealer, consulting or any related services. You may not rely on the statements contained herein. The Goizueta Investment Management Group shall not have any liability for any damages of any kind whatsoever relating to this material. You should consult your advisors with respect to these areas. By accepting this material, you acknowledge, understand and accept the foregoing Goizueta Investment Management Group. All Rights Reserved.

26 Appendices

27 Appendix A: Pro Forma Income Statement (in millions GBP) 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Sales 1 14, , , , , , , ,892.7 Excise duties 3, , , , , , , ,455.8 Net Sales 10, , , , , , , ,436.9 Cost of Sales 4, , , , , , , ,881.0 Gross Profit 6, , , , , , , ,555.8 Marketing 1, , , , , , , ,957.6 Other operating expenses 1, , , , , , , ,144.5 Operating profit (EBIT) 3, , , , , , , ,453.7 Non-operating items (83.0) Finance income Finance charges (512.5) (525.9) (515.0) (509.5) (505.6) Share of after tax results of associates and joint ventures Profit before taxation (EBT) 3, , , , , , , ,447.7 Taxation 1, Profit from continuing operations 2, , , , , , , ,789.2 Discontinued operations (11.0) - (83.0) Net Income 2, , , , , , , ,789.2 Source: Company Filings 1 Projected revenue growth of 4.82% in 2015 projected on an adjusted straight line basis down to 2.56% in Reflects the effects of the Nuvo disposal in FY2013 and additional investments in USL in FY Share of after tax results of associates and joint ventures projected forward using a weighted moving average of historical results 26

28 Appendix B: Pro Forma Statement of Cash Flows (in millions GBP) 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Cash flows from operating activities Profit for the year 2, , , , , , , ,789.2 Discontinued operations Taxation 1, Share of after tax results of associates and joint ventures (229.0) (217.0) (252.0) (236.9) (237.5) (240.2) (238.7) (238.9) Net finance charges (764.3) (775.9) (763.8) (759.2) (755.1) Non-operating items (147.0) 83.0 (140.0) Operating profit 3, , , , , , , ,453.7 Increase in inventories (336.0) (268.0) (229.0) Increase in trade and other recievables (211.0) (350.0) (276.0) (52.4) (Decrease)/Increase in trade and other payables and provisions (92.0) Net increase in working capital (521.0) (552.0) (597.0) Depreciation, amortization and impairment Dividends received Post employment payments less amounts included in operating profit (188.0) (487.0) (196.0) (281.7) (297.1) (272.2) (281.6) (281.9) Other items (1.0) 45.0 (80.0) Other items total Cash generated from operations 2, , , , , , , ,220.9 Source: Company Filings 1 Dividends received projected forward using a weighted moving average of historical results 27

29 Appendix B: Pro Forma Statement of Cash Flows (in millions GBP) 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Cash flows from investing activities Disposal of property, plant and equipment and computer software Purchase of property, plant and equipment and computer software (477.0) (636.0) (642.0) (645.8) (649.5) (653.3) (657.1) (660.9) Movements in loans and other investments (1.0) Sale of businesses 51.0 (16.0) Acquisition of businesses (1,420.0) (644.0) (536.0) (745.2) (662.2) (661.9) (678.6) (670.3) Net cash outflow from financing activities (1,808.0) (1,241.0) (1,089.0) (1,317.0) (1,240.2) (1,239.4) (1,261.6) (1,257.1) Cash flows from financing activities Proceeds from issue of share capital Net purchase of own shares for share schemes - (11.0) (113.0) (59.8) (66.0) (73.5) (68.5) (69.5) Dividends paid to non-controlling interests (101.0) (100.0) (88.0) (94.2) (93.5) (92.6) (93.2) (93.1) Proceeds from non-controlling interests Purchase of shares of non-controlling interests (155.0) (200.0) (37.0) (81.4) (84.4) (79.0) (80.3) (80.5) Proceeds from bonds 1, , , , , , , ,664.5 Repayment of bonds (1,171.0) (869.0) (1,471.0) (1,110.0) (1,146.0) (1,232.7) (1,169.9) (1,181.6) Net movements on other borrowings (64.0) Equity dividends paid (1,036.0) (1,125.0) (1,228.0) (1,717.6) (1,959.1) (2,177.8) (2,422.7) (2,652.4) Net cash outflow from financing activities (788.0) (198.0) (1,622.0) (1,325.8) (1,637.3) (1,999.2) (2,145.6) (2,393.3) Net (decrease)/increase in net cash and cash equivalents (500.0) (921.0) (116.3) (295.9) Exchange differences (27.0) 36.0 (192.0) Net cash and cash equivalents at beginning of the year 1, , , Net cash and cash equivalents at the end of the year 1, , Net cash equivalents consist of: Cash and cash equivalents 1, , Bank overdrafts (32.0) (105.0) (90.0) Source: Company Filings 2 Equity dividends paid at an average 3/5 ratio 28

30 Appendix C: Inventories (in millions GBP) 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E To be used after greater than one year Raw materials and consumables Maturing Inventories - 2, , , , , , ,870.3 Total non-current inventories - 2, , , , , , ,982.4 To be used during this year Raw materials and consumables Work in progress Maturing inventories Finished goods and goods for resale Total current inventories - 1, , , , , , ,694.8 Total inventories Raw materials and consumables Work in progress Maturing inventories - 3, , , , , , ,587.9 Finished goods and goods for resale Total inventories - 4, , , , , , ,677.2 Inventories included in working capital 1-1, , , ,089.3 Source: Company Filings 1 Inventories included in working capital includes all inventories except maturing inventories 29

31 Appendix D: Finance Income (in millions GBP) 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Interest income Fair value gain on interest rate instruments Total interest income Interest charge on bank loans and overdrafts (22.0) (28.0) (40.0) (32.8) (34.0) (34.8) (34.2) (34.3) Interest charge on finance leases (12.0) (20.0) (20.0) (18.4) (19.2) (19.1) (19.0) (19.1) Interest charge on all other borrowings (459.0) (454.0) (395.0) (253.1) (267.9) (260.2) (253.1) (249.4) Fair value loss on interest rate instruments (151.0) (151.0) (117.0) (130.6) (128.6) (128.0) (128.4) (128.3) Total interest charges (644.0) (653.0) (572.0) (434.9) (449.6) (442.2) (434.7) (431.1) Net interest charges (382.0) (399.0) (348.0) (194.3) (211.3) (206.1) (197.0) (193.8) Net finance income in respect of post employment plans in surplus Other finance income Total other finance income Net finance charge in respect of post employment plans in deficit (42.0) (38.0) (29.0) (34.3) (33.5) (32.8) (33.3) (33.2) Unwinding of discounts (17.0) (16.0) (9.0) (12.7) (12.3) (11.7) (12.1) (12.0) Hyperinflation adjustment (3.0) (4.0) (13.0) (25.5) (25.2) (22.8) (24.1) (23.9) Other finance charges (3.0) (5.0) (6.0) (5.1) (5.4) (5.4) (5.3) (5.4) Total other finance charges (65.0) (63.0) (57.0) (77.6) (76.2) (72.8) (74.8) (74.5) Net other finance charges (59.0) (58.0) (40.0) (66.4) (64.5) (60.2) (62.7) (62.3) Source: Company Filings 30

32 Appendix E: Tax Rate Analysis (in millions GBP) 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E Profit from continuing operations before taxation 3, , , , , , , ,447.7 UK Corp. Tax Rate % 23.75% 22.50% 20.75% 20.00% 20.00% 20.00% 20.00% Taxation Elmination of notional tax on after tax results of associates and joint ventures (52.0) (46.0) (56.0) (51.3) (51.3) (51.3) (51.3) (51.3) Differences in overseas tax rates (22.0) (5.0) Items not chargeable (391.0) (331.0) (283.0) (319.0) (310.6) (307.6) (310.8) (309.8) Items not deductible Changes in tax rates Adjustments in respect of prior years (15.0) (15.0) (15.0) (15.0) (15.0) (15.0) 1, Source: Company Filings, KPMG 1 Based on UK government announcements outlining corporate tax rate reductions from April 1 st 2015 onwards 31

33 Appendix F: Weighted Average Cost of Capital Overview of WACC Calculation WACC Calculation Cost of Debt Cost of Equity Pre-tax Cost of Debt 3.8% Risk-free rate 1.62% Corporate tax rate 22.5% Risk premium 7.45% Cost of Debt (K d ) 2.9% Beta (β) 0.96 K d = Pre-tax Cost of Debt D = Weight of debt in capital structure Cost of equity (K e ) 8.8% K e = Cost of Equity E = Weight of equity in capital structure WACC Debt as a % of D+E 61.5% t = Corporate Tax Rate β = Equity beta Equity as a % of D+E 38.5% WACC 5.19% r f = Risk-free rate r m = Market return Assumptions Sensitivity Analysis Capital Structure D/(D+E) 61.5% Based on company filings E/(D+E) 38.5% Based on company filings Cost of Equity 1.62% r f 5-year US government bond β 0.96 Bloomberg equity beta as of October 30, 2014 ERP 7.50% Based on average S&P 500 returns of the past 5-10 years Cost of Debt 3.8% K d Based on management projections Equity Beta (β) Risk Premium 5.19% 6.95% 7.20% 7.45% 7.70% 7.95% % 4.96% 5.05% 5.13% 5.22% % 5.03% 5.12% 5.21% 5.30% % 5.10% 5.19% 5.28% 5.38% % 5.17% 5.26% 5.36% 5.45% % 5.24% 5.33% 5.43% 5.53% t 22.5% Based on management projections Source: Bloomberg, Company Filings 32

34 E 2015E Appendix G: Venezuelan Hyperinflation Analysis Inflation Rates Year World L. America Venezuela % 8.5% 31.6% % 12.1% 62.9% % 9.9% 51.8% % 4.8% 115.5% % 4.5% 38.4% % 4.6% 18.9% % 3.9% 26.2% % 8.6% 29.5% % 3.8% 8.0% % 4.1% 33.0% % 5.4% 34.9% % 6.2% 34.0% % 5.6% 29.6% % 5.9% 17.9% % 6.6% 15.4% % 7.9% 30.1% % 3.0% 7.8% % 5.1% 45.9% % 5.6% 28.2% % 3.6% 14.1% % 2.9% 59.9% 2014E 2.4% % 2015E 2.3% % 140% 120% 100% 80% 60% 40% 20% 0% Diageo currently sells various products in Venezuela and makes adjustments to its financial statements based on the inflation rate in the country IMF estimates were used as the base for our hyperinflation adjustment projections. Source: IMF, Worldbank 33