Diageo Management Discusses Q4 2013 Results - Earnings Call Transcript

Jul.31.13 | About: Diageo plc (DEO)

Diageo (NYSE:DEO)

2013 Earnings Call

July 31, 2013 3:00 am ET


Ivan M. Menezes - Chief Executive Officer and Executive Director

Deirdre A. Mahlan - Chief Financial Officer and Executive Director

Ivan M. Menezes

Good morning, everyone, and thank you for joining us for this webcast. As I'm sure you know, this is my first set of results as CEO, and it's a privilege to take on that role. Paul Walsh provided Diageo with exceptional leadership and shaped our strength and global position, and I want to take this opportunity to thank him on behalf of the entire Diageo team. As these results again demonstrate, Paul did make a strong business even stronger. I know that many of you will have already seen our results announcement, so I will merely recap on the key points and set the agenda for the presentation, which Deirdre and I will now make.

We set out our performance ambition in 2011, and I think it would be useful to measure our achievements this year against that. As I said in our release this morning, we are on track to deliver that medium-term guidance. 5% net sales growth is a robust performance, reflecting the strength of our U.S. spirits business and continued double-digit growth in the emerging markets. It's slightly below our expectations for the year, the result of the weaker top line growth in Asia and the slowdown we've seen in Brazil. However, we don't see anything in these recent trends to change our confidence in the long-term growth of these markets. Our operating margin improvement of 76 basis points is in line with our expectations. Strong price/mix of 4 percentage points contributed to gross margin improvement as did procurement savings and the savings we achieved through our restructuring programs.

The focus of our marketing investment continues to be on our strategic brands. Our marketing campaigns are a competitive advantage for us and this year, we've seen these campaigns extend the leadership of our brands in many markets. We've kept a tight rein on overheads. They are up only 3%, and that was driven by investment in routes to market in Latin America, Africa and Eastern Europe. Underlying, the cash flow is ahead of last year. We made a large contribution to the U.K. pension fund, but free cash flow was still GBP 1.5 billion, another strong year. We delivered double digit EPS growth, and this performance gives us the ability to increase the dividend by a further 9%.

Those are some good numbers, but they don't really give you the true picture of what 28,000 people in Diageo have been focused on this year. So here are my highlights for what I see as being key to the future. This year, we delivered net sales growth worth over GBP 0.5 billion and in a year which had its challenges. That's the equivalent of creating a global brand the size of Captain Morgan in 1 year. For me, the performance of Johnnie Walker this year has been amazing. It is Diageo's biggest brand across many measures, and we've added another 1 million cases this year. It is now a 20-million-case brand. In fact, in the last 10 years, we added nearly 10 million cases and over GBP 1 billion of sales. It's inspiring for me to think of how many people across production, marketing, sales and innovation have contributed to the brand's strong continued performance. The contribution innovation has made to growth is another highlight for me. We started to build our innovation capability around 7 years ago. This year, products launched in the last 5 years account for nearly GBP 1.5 billion of our net sales, up nearly 30% year-on-year. Increasing our presence in the emerging markets is key to making a strong business even stronger, and so another highlight for me this year has been fully embedding the local leaders we have acquired in Turkey, in Brazil, China and Ethiopia. And since the year ended, we have brought USL into Diageo, adding 20 millionaire brands, truly local leaders.

So now I will hand over to Deirdre to give you her perspective on the results we have announced today.

Deirdre A. Mahlan

Thanks, Ivan, and good morning, everyone.

In the last 2 years, I have spoken about the Diageo model for efficient growth. As Ivan often says, this is a simple business, and so is our efficient growth model. If we grow our strategic brands, execute on our leading position in North America and build scale in the emerging markets, we can drive the top line and improve margins. I'm pleased that I am presenting a set of results which reflects good top line growth, continued investment in our brands and market platforms and margin expansion.

Our strategic brands have performed strongly this year, with net sales growth driven equally by volume and price/mix. With the exception of Windsor and J&B, where performance reflected macro challenges in their biggest markets. This good performance was consistent across the brands. In North America, net sales growth was driven equally by volume, price and mix. This expanded gross profit margin, which, together with tight control on overheads, improved operating margin by 120 basis points after a 10% increase in marketing. With another year of double-digit net sales growth, sales from our emerging markets have reached over GBP 4.5 billion, providing the scale from which we can leverage our marketing spend and overheads to drive margin improvement. The geographic breadth of our business means that again this year, we have delivered a robust performance despite individual challenges in certain markets. We've seen further weakness in Southern Europe, a tough traditional on-trade in Korea, and disappointing performance in our Asia duty free. In addition, Brazil and Nigeria were weak, although we did deliver net sales growth in both markets. Let me go into a bit more detail on each of these points.

I'll start with our strategic brands. We delivered 1% volume growth in the year. This was driven by 6% volume growth of our strategic brands in the emerging markets together with 3% volume of growth of these brands in North America. In Africa, the performance of Johnnie Walker, Smirnoff, Smirnoff ready to drink, and Guinness drove this growth. In Latin America, Johnnie Walker and Buchanan's were the key contributors, especially in Venezuela and Mexico. In emerging Asia, Johnnie Walker and Guinness were the biggest drivers of growth, particularly Johnnie Walker Red Label and Guinness in Indonesia, and Johnnie Walker Red Label in Thailand. The strong positions of our strategic brands in Western Europe have, of course, left them exposed to market weaknesses there, primarily J&B in Spain, Guinness in GB and Ireland, and Baileys in Southern Europe.

Moving now to North America, where performance of our strategic brands was key. This is where we focus in North America. These are the brands whose size and brand positions benefit most in the U.S. from our superior route to market with our dedicated distributor sales force. In the year, price increases gave us a little over 2 percentage points of our net sales growth. We increased prices across our spirits brands, ranging from around 3% for vodka brands to 9% for super premium scotch. We even increased the price of Popov by 10% and Gordon's gin by 7%. This reflects our value-based approach in North America, which did cost us some volume share. Mix improvement we generated here was the biggest contributor to the mix improvement Diageo achieved. Mix benefited from the strong performance of Crown Royal and Johnnie Walker and from the volume decline of our low-margin value brands. Innovation was also a key driver of mix as Crown Royal and Bulleit Bourbon contributed almost half of our net sales growth, the results of the introduction of Crown Royal Maple Finished and Bulleit 10 year old. The stronger price and mix improvement we delivered are the result of the upweight in marketing spend we have made on our key North American brands over the last 2 years. Marketing was up 10% this year, focused on the strategic brands and on Bulleit and Don Julio. This strong top line growth delivered nearly 150 basis points of gross margin improvement. While marketing as a percent of sales increased by 65 basis points, overheads were up only 1%. So operating margin increased 120 basis points despite some margin dilution from the weaker performance of our beer business.

Moving to the emerging markets, where we delivered 11% top line and 18% operating profit growth this year. Each of the 3 regions delivered robust growth, although in emerging Asia, our overall net sales growth reflected the weakness in duty free, which was down 15%. In total, including our acquisitions, we added nearly GBP 700 million in net sales in these markets. This scale creates the platform for overall margin improvement from our emerging market business.

As you know, I've said a number of times that we won't drive margin improvement in each market each year as we will make investment in individual markets to drive long-term growth. Our performance this year demonstrates that. In aggregate, margins improved by 170 basis points in our emerging market business. It was driven primarily by the operating margin improvement we delivered in Latin America and Caribbean and emerging Asia. In Latin America, 11 percentage points of price/mix drove gross profit margin. We leveraged our marketing spend and improved overhead efficiency. In emerging Asia, the top line price/mix was muted, given the negative mix from the slowdown in duty free. However, we still delivered gross margin improvement. Marketing was leveraged, and the overhead efficiencies were very strong. In Africa, we have been investing heavily in production and in the year, gross margin reduced. This was in part caused by some issues in Tanzania as we bed down our acquisition there. In Eastern Europe, margins declined as we upweighted our investment across the whole scotch category in Russia. In contrast, in Turkey, we delivered very strong margin improvement as Mey Içki completed its first full year in Diageo.

Our geographic breadth insulates our overall performance from individual mind volatilities. Therefore, despite a change in regional trends between the first and second half, overall, there is little difference in our growth between the 2 halves. In North America, we had a strong second half for U.S. spirits. In the third quarter, it was driven by pricing and the launch of innovations, such as Crown Royal Maple Finished and Smirnoff Confectionery flavors. The fourth quarter benefited from shipments of the new Cîroc flavor ahead of its launch this July.

In Western Europe, the underlying trends are unchanged. The stronger second half performance was due to the comparison against the weak third quarter in France in the prior year. And in the fourth quarter, we had good momentum in Western Europe from continued growth of Captain Morgan and from innovation with the introduction of Captain Morgan Spiced and the expansion of premixes.

In Africa, Eastern Europe and Turkey, the first quarter was very strong, with 16% net sales growth, the result of favorable shipment phasing in Russia and Turkey. That flattered the performance of the region in the first half. There has been a slight softness in the second half in some markets. However, the region delivered good growth for the year. In Nigeria, we grew net sales 5% despite the consumer weakness we have seen there. East Africa grew net sales 10% and South Africa grew 17%, while Russia and Eastern Europe grew 16% and Turkey, 8%.

In Latin America and Caribbean, as you know, shipments were brought forward into first half. And therefore, sales growth was lower in the third quarter. In the fourth quarter, there was no impact from shipment phasing, and net sales grew 18%. This was the result of very strong sales in Venezuela, which offset the softness we have seen in Brazil.

In Asia-Pacific, despite an improved performance in Korea and China and continued strong performance in Southeast Asia, quarter 4 net sales were flat year-on-year as a result of our decision to destock in India and in Asia duty free. The second half was therefore weaker than that first; although as this was in part driven by destocking, I would expect to see some improvement in the first quarter of fiscal '14. These movements demonstrated both the volatilities inherent in developing markets and our ability to absorb them due to geographic breadth.

Now before I move to other aspects of our overall financial reporting, let me bring this together, looking at the movement in operating margin. Foreign exchange movements, while volatile in the year, had only minimal impact on our reported performance and, therefore, on margin. Acquisitions and disposals have led to improved margins mainly as we saw reduced acquisition cost in the year. The termination of the Cuervo distribution agreement will improve our reported margin in fiscal '14. The organic improvement in operating margin was driven by 11% net sales growth in the emerging markets and 5% net sales growth in North America, offset by 4% net sales decline in both Western Europe and developed Asian markets. Net sales benefited from price increases in all regions and from mix improvement in Latin America and North America. Marketing increased as a percent of sales to 15.7%. This drives our future growth and therefore, the biggest increases in spend were on the biggest growth opportunities in the emerging markets, in North America and on our super and ultra-premium brands. While we increased our investment in our market platforms, we have leveraged our overhead spend, and this drove margin expansion. In summary, we delivered good top line growth, continued our investment for the future, and we drove and delivered margin expansion.

Now I am going to move on to those other aspects of our reporting. As you know, we have announced a number of changes in Global Supply since 2009. And in March this year, we announced a further change to align the supply organization with the changes we made in the regions in 2011. The biggest components, therefore, of the charge for business restructuring were GBP 36 million in respect of the project to centralize brewing on one site in Ireland and GBP 25 million in respect of the Supply excellence restructuring we announced this March. Next year, I expect to charge about GBP 85 million in respect to supply restructuring projects and a cash impact of GBP 110 million for all restructuring programs. Other operating exceptionals relate to a brand impairment charge for Cacique, mainly due to the continued tough trading environment in Spain, partially offset by a credit relating to changes in the way inflation is applied to our pension scheme liabilities. The charge for sale of business is the write-off of our interest in Nuvo and in our joint venture with the developer of that brand as we have decided to focus on our own innovations in this consumer space.

We had another year of strong cash flow. Free cash flow was GBP 1.5 billion even after the GBP 400 million contribution we made to our U.K. pension scheme. Higher operating profit was the main contributor. Operating working capital was also better than last year as a result of the strict working capital management we have implemented across the business, supported by making working capital an annual bonus target. The benefit of this reduction in operating working capital partially offset our incremental investment of GBP 69 million in maturing stock. Dividends received from associates, mainly from Moët Hennessy were up year-on-year. Net CapEx was GBP 604 million, up GBP 159 million. Our major investments were on production capacity in Africa, production in Scotland, investment in our U.S. Virgin Islands facilities and in Ireland as we moved to one brewing site. We also spent about GBP 40 million in our newly acquired businesses. Next year, I would expect CapEx to be around GBP 750 million as we continue to build capacity and drive efficiency through these major projects. Free cash flow is higher than our guidance in February, mainly due lower than expected spend on CapEx. And while tax paid is up year-on-year, certain tax payments we thought would be made this year will now be made in fiscal '14.

Closing net debt increased to GBP 8.4 billion due to acquisitions. Ypióca closed last August. We increased our stake in Shui Jing Fang in June and subscribed for the preferential share allotment in USL in May 2013. The recent strength of the U.S. dollar has increased our reported debt.

Borrowings, as you just saw, increased by around GBP 800 million. However, average net debt is broadly the same year-on-year given that in fiscal '12, the biggest single outflow was for Mey Içki in August 2011. The higher interest charge, therefore, reflects a slight increase in effective interest rate from 4.7% to 4.9%. This is the result of more modest use of commercial paper as we raised debt in the year to lock in the current low interest rates. Next year, we expect the effective interest rate to be close to 4% as the benefits of our bond issuances at lower interest rates over the last 2 years flow through. Finance charges from post-employment obligations were GBP 12 million adverse to last year, primarily because the current low interest rate environment has brought down expected returns on pension assets.

In fiscal '14, we will have to restate for the new accounting standard on pension accounting. I would expect to issue this restatement in October with our IMS. The application of the revision to IAS 19 will be that on a restated basis, net finance charges in fiscal '13 will increase by around GBP 30 million. I estimate that the IAS 19 charge in fiscal '14 will be about GBP 10 million. In addition, operating profit will reduce by about GBP 10 million in respect of pension service charges which used to be charged to finance charges. There is also a new standard on accounting for joint ventures, and we will restate for this, although it leaves EPS unchanged.

And finally, moving down the income statement to EPS. The effective tax rate remains at 18%, and I currently expect the same for next year. Minority interests are lower as last year included the minority share of the gain made on the sale of shares in Tanzania Breweries by EABL. EPS, excluding exceptional items, was therefore up 10.8%, driven mainly by our organic operating profit growth.

As Ivan said earlier, we believe our performance this year leads us on track to deliver our medium-term guidance. And now let me hand back to Ivan.

Ivan M. Menezes

Thank you, Deirdre. What I want to do now is talk about what we did this year and what gives us the confidence that we're on track to deliver our guidance. As Deirdre said, I do think this is a simple business. Global premium drinks is an attractive industry. There are a growing number of consumers, and consumers are premiumizing. We have the brands and the global reach, and we are very clear how we drive value from that.

First, by enhancing the leadership position we have in North America. The size of our North American business contributes balance between our developed and emerging markets businesses. Having a business which delivers consistent top line growth at high margins is a source of strength when we see periods of volatility in the emerging markets.

Secondly, by enhancing our scale in the emerging markets to drive industry-leading growth. We have to have a cost focus in everything we do to drive efficient growth and we have to deliver this in a way which creates trust and respect from all stakeholders, gives leadership to our industry and contributes to the communities we are part of.

Let me start with our brands. Many of you will know that I often use this slide and if I could only show one slide, this would be the one. Each year, we broaden our reach across categories. And broadening our reach is important as consumers and customers are at different stages of development in different markets. In the developed markets, we have a business which is balanced across all major beverage alcohol categories, with leading brands in each. It gives us the brand platforms we need to meet changing consumer and customer trends in both the short term and long term. In the emerging markets, our leading brands in scotch and vodka give us leadership in international spirits and gives us scale, which we have expanded with our acquisitions of local leaders. In Africa, this position is strengthened even further by our beer brands. Our consumer base is increasing in the emerging markets. The number of high net worth individuals is set to grow by 400 million globally in the next decade. And the number of emerging middle-class consumers will have increased by nearly 1.3 billion. This presents Diageo with an exceptional opportunity. We can introduce leading global brands into new categories, and we can premiumize our local leaders. We can widen our reach to both luxury and emerging middle-class consumers, building our scale in both occasions and driving top line growth and margin expansion.

The fact that the consumer opportunity differs by market impacts how we build our brands. Johnnie Walker, as our biggest and most global brand, illustrates this really well. In Western Europe, our biggest opportunity is in reserve brands across all markets. And so while spend on Johnnie Walker Red declined slightly, we have heavily upweighted spend on the super and ultra-premium offerings. We did the same in North America as consumers there continued to premiumize and as we increased our focus on the opportunity in gifting [ph] . You have seen the stronger and share gains it delivered. In Asia, while spend behind Johnnie Walker Red in Thailand and Vietnam increased double-digit, the biggest increase we made was in super and ultra-premium, reflecting the huge opportunity we see in the luxury sector here. This spend behind high-profile events in trend-leading accounts also benefits the brand equity of Johnnie Walker Black Label. And we have been able to reduce marketing on Black Label to fund the increase in super and ultra-premium. In Africa, the bulk of our incremental spend has been on Johnnie Walker Red, given the opportunity we now have to expand our reach to middle-class consumers, with campaigns such as Step Up. We have the same opportunity in Latin America. And there, we've increased our spend on Johnnie Walker Red. But we are also driving the growth of super-premium scotch, with strong campaigns behind Johnnie Walker Gold Label Reserve and Platinum.

Moving now to the first of our focus areas. North America had a very strong year, with robust net sales growth from volume, price and mix. This is the world's biggest and most profitable drinks market with favorable demographics. Our brand range, our route to market and our scale creates a very strong platform here. Key to delivery on this platform is great execution in marketing and innovation. Marketing is key to our brand strength. We need great campaigns, but they also need to be executed superbly.

Let me give you an example. As you know, we haven't delivered a strong performance on Baileys in the last couple of years. Fiscal '13's performance was much stronger. The team in North America have executed superbly on the new global campaign, and it was ranked in the top 1% of effective ads in the U.S. Now I'm cautious to declare success from 1 year's result for a brand as significant as Baileys because the key to success will be that we maintain that level of execution again next year.

Innovation is the biggest driver of growth in North America. In the last few years, we have led this growth. Cîroc Peach and Crown Royal Maple are 2 of the biggest innovations the industry has ever seen, and our innovations in wine have turned our wine performance around. Innovation in beer in the last 12 months has not been as successful as we'd like. We need to crack the code in beer.

Our dedicated distributor model in U.S. spirits is now 10 years old. I sometimes have to remind myself what a bold move it was, given it's now such an accepted and successful part of our business and that of our distributors. In 2011, we refined it further and increased the sales resources and skills that are brought to the sale of our brands. The retail environment is changing, and retailers now demand more from brand owners. Just last month, I visited a Walgreens store in Chicago. It was very impressive, well laid out, focused on premium brands, bringing sales theater to shoppers. The team there told me they needed great execution from brand owners and their distributors, high levels of service and innovation. It strengthened my belief that there is a lot of growth to go for in the U.S., but we have to be at the top of our game to capture it.

Diageo's emerging market position is very strong, and the opportunity which exists in the emerging markets to grow sales is well understood. As Deirdre showed you earlier, our scale means that not only are we growing top line, but our emerging markets business is contributing to our margin improvement. In the last 3 years, we have invested over GBP 2.5 billion to acquire leading local brands. These acquisitions -- and I include USL here even though it completed after the financial year ended these acquisitions have significantly increased our presence in the emerging markets and enhanced our platform for growth. They all met our strict acquisition criteria for strong brands with good market positions, accretive to grow and meeting our financial hurdle rates.

You've seen the strong performance we've delivered from Mey Içki, with 8% top line growth and 5 percentage points for margin improvement. We will have to manage the introduction of new regulations and advertising in Turkey, but the business is very strong and well managed so I am confident that we can meet the requirements of the regulations and grow our business.

In Ethiopia, we delivered organic growth up 40%, with beer up nearly 50% and Johnnie Walker up 25%.

Shui Jing Fang has had a tougher year. We have fully consolidated it for the first time this year. And sales were weak in the second half, given the impact of the anti-extravagance measures have had on baijiu sales. Current market trends do not, however, change our views that premium baijiu remains a long-term growth opportunity given the unique position the baijiu category holds in China.

The acquisition of our interest in Hanoi Vodka was part of our strategy to improve our route to market in Vietnam. This year, we delivered 40% net sales growth as we begin to benefit from these changes and investment.

Ypióca has yet to reach its first anniversary, but it's on track. Our strategy is to build Ypióca into a national champion by improving the brand's distribution in premium and modern on-trade outlets. The acquisition was hugely complementary to our international spirits business in Brazil. And we will focus on delivering those synergies over the next few years, which brings me to our newest acquisition, USL.

This acquisition was about leading the Indian spirits market, a market which is premiumizing with 4 million new consumers for Western-style spirits each year. And USL have the leading brands. We closed the transaction on the 4th of this month. Since then, we've made a number of appointments. And our transition team is already established in Bangalore, working with the USL management. The first USL board meeting with the new non-exec directors and the other Diageo appointees is being held today in Bangalore. This is real progress in a short period, and we intend to maintain this pace. We are looking at the short term, for example, ensuring we have a successful selling season around Diwali, and we are looking at the long term at investment and organization. We have started a new and exciting part of the Diageo story, and I look forward to sharing it with you at future results presentations.

As we drive out cost, we can invest to build stronger routes to market in these emerging markets, and our biggest opportunity to do this is in Africa. Incomes are growing in Africa although from a low base. The number of high net worth individuals is also growing. These are brand-conscious consumers, well aware of the status which international brands confer. Our brand reach across price points and categories and the strength of our established routes to market gives us a unique advantage in Africa. We have to sustain that advantage as other international companies begin to build their presence in Africa. Beer is our biggest category at just under 70% of our sales. We have value brands which offer a trade-up for those consumers entering from the illicit segment. We've also seen consumers trade up within our beer brands, and our premium beers this year grew faster than beer in total. Again, this year, spirits, including Smirnoff ready to drink, grew strongly, up nearly 20%, Johnnie Walker being the single biggest contributor to growth. Our spirits brands are performing very well in Africa. We now sell nearly 0.5 million cases of scotch at premium and above price points and nearly 2 million cases of Johnnie Walker. We can do more. This is why I have added leadership capacity. With Nick and Andy working together, Nick leading our route to consumer work, we have the opportunity to build the best route to consumers in Africa. Africa has the biggest emerging middle-class opportunity, and my aim is to build on the strengths we already have to ensure we have a healthy beer business and we transform our spirits position.

Our focus on North America and the emerging markets will drive margin. But in addition, we can also deliver our efficient growth targets in 3 more ways. The first is by improving our performance in Western Europe. Western Europe is a GBP 2 billion business with a 30% margin. We do have markets where the consumer environment is tough, but we also have markets where the consumer dynamics are strong. In addition, we have momentum in Reserve, in rum with Captain Morgan, in gin and from innovation. We can improve performance. I don't believe that, however, we are through the decline yet. But I think that the very destabilizing period is now over and we can now plan and implement those plans with some certainty. In fiscal '14, we need to create more impact around our brands. We need to upweight our media and we need to increase our sales activation, especially for our premium brands. I expect that we can moderate the decline in Western Europe in fiscal '14 and hold our margins.

I have already spoken about how our markets and consumers are changing. To grow at a time of change, we need to invest in marketing, in our routes to consumers. Everyone at Diageo understands the need to drive out cost so that we can make these investments while also expanding margin. Our priorities, therefore, are very clear. We have to deliver the savings we identified from our restructuring programs. We have to deliver marketing efficiencies, reducing below-the-line spend activities and increasing media spend. We have to continually drive productivity improvements that translate into cost reduction. This year, the savings we identified in our 2011 operating model review have helped us keep the total increase at overheads to just 3% despite major investment in our routes to market in Africa, Latin America and Eastern Europe. In North America, we have already captured savings in promotional and point-of-sale spend, which have funded the upweighted media spend. We now need to do the same in all our markets. Having a focus on driving out cost also drives efficiency. For me, the biggest benefit of the Supply excellence program is not the GBP 60 million of cost savings it delivers, it is the agility it creates now that the in-market teams and the supply function are aligned.

In the last 5 years, we have grown our reserve brand business to be a significant part of Diageo, now over 10% of our total business and we're the global leader in this category. This year, it has continued to perform strongly with double-digit growth in both developed and emerging markets. We know what grows luxury spirit brands: great liquids and marketing, which is focused on the consumer of luxury goods. We now have a commercial machine which creates great brand building events in trend-leading accounts in the cities and resorts where consumers of luxury products spend their time. We know that the luxury consumer is global. And therefore, our messages are consistent across geographies. And we are building the fame of our brands with high-profile events and advertising and through association with other luxury brands. No one gives an unknown brand as a gift.

Looking at the performance of our reserve brands, you can see that 40% of the growth in reserve came from U.S. spirits. It was the birthplace of our reserve brand focus. So it's to be expected that it is the biggest market for reserve. In super and ultra-deluxe vodka, Ketel One and Cîroc continue to perform strongly. This year, we also saw Bulleit established itself as the leading super deluxe bourbon and Johnnie Walker super deluxe performed very strongly, with sales up 13%. In Asia, the growth was driven by Southeast Asia and in China and Taiwan, with the key brands being Johnnie Walker and The Singleton. In Latin America, Buchanan's Special Reserve drove growth. And in Western Europe, as I mentioned earlier, we are seeing growth in reserve in every market except France.

Building the trust and respect of our stakeholders is not only important to me personally, it is essential for our growth, especially in the emerging markets, which have more demanding expectations of the private sector. We have 3 areas of focus: The first is the role of alcohol in society. We now support more than 300 responsible drinking programs in over 40 countries. These are programs, such as the contribution we made to Mexico City's drive without alcohol program. We donated 50,000 breathalyzer kits and provided thousands of leaflets on responsible drinking. Since the campaign was launched, alcohol-related deaths on the road have dropped by 30% and the program has been hugely popular with the public, as well as being recognized nationally and internationally for its success.

Our second priority is the environment. Our environmental commitments are in 2 areas: operational targets around emissions, water and waste; and packaging targets. These are absolute targets to reduce our environmental impact in real terms even as we grow the business. Looking at our operational targets this year, we reduced carbon emissions, reduced the amount of water we absorbed, improved water efficiency and reduced the volume of water we use in water-stressed locations. Progress on the amount of wastewater we discharge wasn't where we wanted it and we have commissioned new projects in Scotland and Africa, which will significantly reduce the amount of wastewater we discharge. We made enormous progress on our target to reduce waste to landfill. 25 of our production sites send no waste to landfill and 50 sites send less than 1 tonne. Material which would have gone to landfill is now used by farmers. In the U.S. Virgin Islands, all the byproducts from our rum distillations are now being used in animal feed.

Moving to our packaging targets. We know that great brands should come in great packaging. It protects, preserves and displays our drinks. We want to keep the sense of style and distinction in our products, but we also want to reduce the environmental impact of our packaging. Since 2009, we've reduced the average weight of our packaging by 5% with projects such as reducing the weight of Smirnoff glass bottles in Venezuela and the new lighter J&B bottle. At the same time, we are increasing the recycled content in our packaging. 60% of the new Baileys bottle is recycled glass and we've increased the use of recycled glass for both Smirnoff and Bundaberg in Australia.

We are linked to the social and economic development of the communities we are part of. Increasingly, we are getting involved in the entire value chain from clean water to vocational skills in the hospitality industry, to working with smallholder farmers on increasing their yield. Most of our Water is Life projects are in Africa, but we've also launched projects in Asia, in Malaysia, Vietnam and Cambodia. Our Learning for Life programs teach skills and provide training in bartending, tourism, retailing, hospitality and entrepreneurship, helping people find employment and become active contributors to their community. In 2013, we ran 59 programs in 30 countries and trained 25,000 people. We now have programs in place to train bar staff for all the official and corporate Olympic hospitality events in Brazil. This year, we've begun to focus on women's empowerment following feedback from stakeholders about the impact of the alcohol industry on women and because women's empowerment is now a major issue on the global policy agenda. Already in Asia, we've made a commitment to support 2 million women through community investment programs in 17 countries. I am convinced that each of these programs strengthens our businesses within the communities we are part of. They are the right thing to do and make our employees proud to work for Diageo.

Before we end, I want to talk about the future. I believe that we have one of the strongest businesses of any consumer products company but I also believe that our future will be about scaling our financial performance in a rapidly changing world. Consumer companies are entering an era where demographics and consumer trends are changing far quicker than ever before. We must ensure that we build on our strengths and stay agile and adaptable to compete effectively, deliver strong performance and build our reputation in a more demanding world.

My ambition for Diageo remains unwavering. I am determined that measured against consumer-product companies, we should sustain top-tier performance across net sales growth, margin improvement and cash flow. I'm also determined that we should deepen our reputation by becoming trusted and respected by customers who can share our success, by consumers who will be delighted by our brands, by investors who are confident in our ability to deliver what we say, and by communities who value us as good citizens. Diageo's future success will be measured in the value we create and in the way we do it. I lead a the fantastic team, 36,000 strong now that we've closed USL. And we are going to create a company that is respected for sustained financial performance and earns the trust of all our stakeholders.

Thank you for your time this morning. I look forward to our teleconference at 9:30, when Deirdre and I will be joined by the regional presidents to take your questions.


This is now concludes the first part of the call. [Operator Instructions] Once again, this is the first -- the end of the first part of our call. You may now disconnect your lines. Thank you.

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