Description
it include their future plan for success
FUTURE PLANNING OF PEPSICO. IN INDIA
Currently PepsiCo India buy the right to PepsiCo bagging the title
sponsorship of the forthcoming Indian Premier League (IPL) for just under Rs 397 crore for the next five years starting January 1, 2013. Cricket has been a national passion in India and IPL with its easy-to-consume format, glamour and razzmatazz has made it a must-have in any mass-marketer's annual budgetary allocation. In the recently concluded bid, Pepsi-Co has gone ahead and made a hefty outlay towards the title rights, which a rival company's head, on condition of anonymity, points out is a big risk to take especially in the current unpredictable economic scenario.
?
Plans to increase advertising and marketing support behind its global brands by $500-$600 million in 2012, with particular focus on North America; going forward, it expects to maintain or increase that rate of support as a percentage of revenues
?
Multi-year productivity program expected to generate $1.5 billion of incremental cost savings by 2014 through optimization of operating practices and organization structure, including a reduction in force of about 8,700 employees, about 3 percent of global workforce
?
Company targets high-single-digit core constant currency* EPS growth for 2013 and beyond after a transition year in 2012, in which it expects core constant currency EPS to decrease by 5%
?
Announces plan to increase returns to shareholders in the form of higher dividends and share repurchases in 2012 PepsiCo (NYSE: PEP) announced today a series of strategic investment and productivity initiatives to deliver top-tier, sustainable long-term growth for its shareholders. These decisions are based on a comprehensive review by the Company's management of its portfolio, brands, costs, organization and capital structure. As a result of its review, the Company reaffirmed its commitment to an integrated food and beverage portfolio through a one-company platform.
"In a volatile global environment over the past five years, PepsiCo has delivered double-digit compound annual growth in core net revenue, 8% compound annual growth in core EPS, and returned about $30 billion to shareholders in the form of dividends and share repurchases," said PepsiCo Chairman and CEO Indra Nooyi. "Our goal is to continue on that earnings trajectory over the next 5 to 10 years, fully recognizing that we need to make changes in how we operate to address the challenges we identified in the review process. 2012 will be a transition year, in which we will be taking the appropriate steps to build a stronger, more successful company going forward."
Key Initiatives The Company reaffirmed the underlying strength of its integrated food and beverage portfolio and concluded that PepsiCo offers the most compelling value to shareholders as one company. Beginning in 2012, PepsiCo is undertaking a number of key actions to further strengthen the Company and enhance shareholder value. The Company said it plans to:
?
Significantly increase investments in its iconic brands and in bringing innovation to market. Advertising and marketing spending will increase by $500-$600 million in 2012, the majority in North America. Going forward, it expects to maintain or increase that rate of support as a percentage of revenues. To drive efficiencies, it will reduce the number of agency partners and also take steps to leverage the global scale of its top brand platforms. The brand investments are expected to drive topline growth and enable greater price realization;
?
Implement a three-year productivity program that is expected to generate over $500 million in incremental cost savings in 2012, further incremental reductions in the cost base of about $500 million in 2013, and an additional $500 million in 2014. The productivity savings will span every aspect of the business: leveraging new technologies and processes across operations, go-to-market and information systems; heightened focus on best practice sharing across the globe; consolidating manufacturing, warehouse and sales facilities; and implementing simplified organization structures, with wider spans of control and fewer layers of management. This effort includes headcount reductions of about 8,700 employees across 30 countries, about 3% of the Company's global workforce. The
productivity programs will enhance the Company's cost-competitiveness as well as provide a source of funding for future brand-building and innovation initiatives.
?
Improve its net return on invested capital by at least 50 basis points annually beginning in 2013 through increased focus on capital spending and working capital management. As an example, in 2012 we will be reducing capital expenditures by 10% versus 2011. The emphasis is on systematically improving the efficiency of the existing asset base; and
?
Enhance returns to shareholders in 2012 through both a 4% increase in its annual dividend beginning with the June 2012 dividend payment, and also the execution of a share repurchase program this year of at least $3 billion. 2012: A Transition Year, with Accelerated Productivity, Stepped-Up Brand Investment, and High Commodity Costs "As we implement our strategic priorities in 2012, we've had to make some tough decisions," said Chief Financial Officer Hugh Johnston. "As a result, 2012 will be a year of transition, one in which we will make the right investments to position PepsiCo properly to achieve long-term high-single-digit core constant currency EPS growth." For 2012, the Company is targeting mid-single-digit core constant currency net revenue growth, in-line with its long-term target. It expects a decline in core constant currency EPS of approximately 5 percent from its fiscal 2011 core EPS of $4.40, reflecting a combination of strategic and macroeconomic factors, primarily:
?
Marketplace Investments: In 2012, the Company will step-up its strategic brand investments by $500-$600 million, particularly in North American beverages and food -- the benefits from which will be increasingly seen in the second half of 2012 and into 2013. Further, the Company anticipates a larger increase in consumer-
facing spending through marketing efficiency initiatives. Additionally, incremental investments in routes and display racks will total about $100 million in 2012.
?
Commodities: The Company anticipates a second consecutive year of global commodity cost inflation that is well above historic levels. In a different economic climate the Company would likely offset these additional costs through increased pricing. However, it does not anticipate that it can pass through all of the higher commodity costs to its consumers in 2012 given the continuing challenges that consumers are facing, particularly in the developed economies.
?
Pension/Interest/Taxes: Additionally, the Company expects higher pension costs as a result of a lower discount rate, higher net interest expense as it increases indebtedness and also terms-out debt in a low interest rate environment, and a core tax rate of approximately 27%, about 50 basis points higher than in 2011.
?
Productivity: Partially offsetting these additional costs, major productivity initiatives are expected to result in about a $500 million incremental reduction in operating expenses in 2012. Based on the current forex market consensus, foreign exchange translation would have a three percentage point unfavorable impact on the Company's full-year core EPS growth in 2012. The following table presents the key elements explaining the difference between the Company's long-term core constant currency EPS growth target and its 2012 core constant currency EPS growth target:
Long-Term Core EPS Growth Target (CC) Increased Marketplace Investments Excess Commodity Inflation Higher Pension Costs Higher Interest and Taxes Incremental Productivity
HSD
~8% (8) (9) (1) (2) +7
2012 Core EPS Growth Target (CC) On a reported basis, the Company's results will reflect charges from its three-year productivity program, primarily severance costs associated with workforce reductions. In the fourth quarter of 2011, the Company incurred pre-tax non-core restructuring charges of $383 million, and it anticipates additional charges of approximately $425 million in 2012 and another $100 million from 2013 through 2015. The Company is targeting about $8 billion in cash flow from operating activities and more than $6 billion in management operating cash flow (excluding certain items) in 2012, which will include the favorable impacts of a 10% reduction in capital expenditures and incremental working capital efficiency. The Company also expects to make a pre-tax discretionary pension and retiree medical contribution of $1 billion in 2012.
~(5)%
Dividend Increase/Higher Share Repurchases
Reflecting the Company's commitment to return capital to shareholders and confidence in its long-term growth targets, PepsiCo today announced that it will raise the annualized common stock dividend, effective with the dividend payable in June 2012, by 4 percent to $2.15 per share, the 40th consecutive year of dividend growth. The Company anticipates increasing share repurchases in 2012 by at least $3 billion, which will be financed by operating cash flow and additional debt. Long-Term Financial Targets PepsiCo provided its long-term target of mid-single-digit constant currency net revenue growth. It also announced that it is targeting long-term core constant currency operating profit growth of 6-7%, and long-term high-single-digit core constant currency EPS growth after a transition year in 2012, driven by positive returns from executing its strategic initiatives.
About PepsiCo In its global portfolio of food and beverage brands, PepsiCo has 22 different brands that generate more than $1 billion each in annual retail sales. Our main businesses also make hundreds of other enjoyable foods and beverages that are respected household names throughout the world. With net revenues of over $65 billion, PepsiCo's people are united by our unique commitment to sustainable growth by investing in a healthier future for people and our planet, which we believe also means a more successful future for PepsiCo. We call this commitment Performance with Purpose: PepsiCo's promise to provide a wide range of foods
and beverages for local tastes; to find innovative ways to minimize our impact on the environment, including by conserving energy and water usage, and reducing packaging volume; to provide a great workplace for our associates; and to respect, support, and invest in the local communities where we operate.
Cautionary Statement: Statements in this communication that are "forward-looking statements," including PepsiCo's 2012 guidance and long-term growth targets, are based on currently available information, operating plans and projections about future events and trends. Terminology such as "believe," "expect," "intend," "estimate," "project," "anticipate," "will" or similar statements or variations of such terms are intended to identify forward-looking statements, although not all forward-looking statements contain such terms. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties 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; PepsiCo's ability to compete effectively; unfavorable economic conditions in the countries in which PepsiCo operates; damage to PepsiCo's reputation; PepsiCo's ability to grow its business in developing and emerging markets or unstable political conditions, civil unrest or other developments and risks in the countries where PepsiCo operates; trade consolidation or the loss of any key customer; changes in the legal and regulatory environment; PepsiCo's ability to build and sustain proper information technology infrastructure, successfully implement its ongoing business
transformation initiative or outsource certain functions effectively; fluctuations in foreign exchange rates; increased costs, disruption of supply or shortages of raw
materials and other supplies; disruption 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 collective bargaining agreements or strikes or work stoppages; failure to successfully complete or integrate acquisitions and joint ventures into PepsiCo's existing operations; failure to successfully implement PepsiCo's global operating model; failure to realize anticipated benefits from our productivity plan; any downgrade of our credit ratings; and any infringement of or challenge to PepsiCo's intellectual property rights. For additional information 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 cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. PepsiCo undertakes no obligation to update any forwardlooking statements, whether as a result of new information, future events or otherwise.
Glossary Core: Core results are non-GAAP financial measures which exclude certain items from our historical results. In 2006, core results exclude certain tax adjustments and restructuring and impairment charges. In 2011, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, restructuring charges, an extra week of results, as well as merger and integration costs and certain inventory fair value adjustments in connection with our acquisitions of The Pepsi Bottling Group, Inc. (PBG), PepsiAmericas, Inc. (PAS)
and WBD. With respect to our 2012 and longer-term guidance, our core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, merger and integration charges, restructuring and impairment charges, and the impact of certain hedging contracts in connection with our acquisitions of PBG and PAS. For more details and reconciliations of our 2011 core results and 2012 and beyond core and core constant currency guidance, see "Reconciliation of GAAP and Non-GAAP Information" in the exhibits attached hereto. Constant currency: Financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In order to compute our constant currency results, we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior year average foreign exchange rates. Management operating cash flow: Net cash provided by operating activities less capital spending plus sales of property, plant and equipment. This non-GAAP financial measure is our primary measure used to monitor cash flow performance. See the attached exhibits for a reconciliation of this measure to the most directly comparable financial measure in accordance with GAAP (operating cash flow). Management operating cash flow, excluding certain items: Management operating cash flow, excluding: (1) discretionary pension and retiree medical contributions, (2) restructuring payments, (3) merger and integration payments in connection with our PBG, PAS and WBD acquisitions, (4) capital investments related to thebottling integration, and (5) the tax impacts associated with each of these items, as applicable.
doc_190110550.docx
it include their future plan for success
FUTURE PLANNING OF PEPSICO. IN INDIA
Currently PepsiCo India buy the right to PepsiCo bagging the title
sponsorship of the forthcoming Indian Premier League (IPL) for just under Rs 397 crore for the next five years starting January 1, 2013. Cricket has been a national passion in India and IPL with its easy-to-consume format, glamour and razzmatazz has made it a must-have in any mass-marketer's annual budgetary allocation. In the recently concluded bid, Pepsi-Co has gone ahead and made a hefty outlay towards the title rights, which a rival company's head, on condition of anonymity, points out is a big risk to take especially in the current unpredictable economic scenario.
?
Plans to increase advertising and marketing support behind its global brands by $500-$600 million in 2012, with particular focus on North America; going forward, it expects to maintain or increase that rate of support as a percentage of revenues
?
Multi-year productivity program expected to generate $1.5 billion of incremental cost savings by 2014 through optimization of operating practices and organization structure, including a reduction in force of about 8,700 employees, about 3 percent of global workforce
?
Company targets high-single-digit core constant currency* EPS growth for 2013 and beyond after a transition year in 2012, in which it expects core constant currency EPS to decrease by 5%
?
Announces plan to increase returns to shareholders in the form of higher dividends and share repurchases in 2012 PepsiCo (NYSE: PEP) announced today a series of strategic investment and productivity initiatives to deliver top-tier, sustainable long-term growth for its shareholders. These decisions are based on a comprehensive review by the Company's management of its portfolio, brands, costs, organization and capital structure. As a result of its review, the Company reaffirmed its commitment to an integrated food and beverage portfolio through a one-company platform.
"In a volatile global environment over the past five years, PepsiCo has delivered double-digit compound annual growth in core net revenue, 8% compound annual growth in core EPS, and returned about $30 billion to shareholders in the form of dividends and share repurchases," said PepsiCo Chairman and CEO Indra Nooyi. "Our goal is to continue on that earnings trajectory over the next 5 to 10 years, fully recognizing that we need to make changes in how we operate to address the challenges we identified in the review process. 2012 will be a transition year, in which we will be taking the appropriate steps to build a stronger, more successful company going forward."
Key Initiatives The Company reaffirmed the underlying strength of its integrated food and beverage portfolio and concluded that PepsiCo offers the most compelling value to shareholders as one company. Beginning in 2012, PepsiCo is undertaking a number of key actions to further strengthen the Company and enhance shareholder value. The Company said it plans to:
?
Significantly increase investments in its iconic brands and in bringing innovation to market. Advertising and marketing spending will increase by $500-$600 million in 2012, the majority in North America. Going forward, it expects to maintain or increase that rate of support as a percentage of revenues. To drive efficiencies, it will reduce the number of agency partners and also take steps to leverage the global scale of its top brand platforms. The brand investments are expected to drive topline growth and enable greater price realization;
?
Implement a three-year productivity program that is expected to generate over $500 million in incremental cost savings in 2012, further incremental reductions in the cost base of about $500 million in 2013, and an additional $500 million in 2014. The productivity savings will span every aspect of the business: leveraging new technologies and processes across operations, go-to-market and information systems; heightened focus on best practice sharing across the globe; consolidating manufacturing, warehouse and sales facilities; and implementing simplified organization structures, with wider spans of control and fewer layers of management. This effort includes headcount reductions of about 8,700 employees across 30 countries, about 3% of the Company's global workforce. The
productivity programs will enhance the Company's cost-competitiveness as well as provide a source of funding for future brand-building and innovation initiatives.
?
Improve its net return on invested capital by at least 50 basis points annually beginning in 2013 through increased focus on capital spending and working capital management. As an example, in 2012 we will be reducing capital expenditures by 10% versus 2011. The emphasis is on systematically improving the efficiency of the existing asset base; and
?
Enhance returns to shareholders in 2012 through both a 4% increase in its annual dividend beginning with the June 2012 dividend payment, and also the execution of a share repurchase program this year of at least $3 billion. 2012: A Transition Year, with Accelerated Productivity, Stepped-Up Brand Investment, and High Commodity Costs "As we implement our strategic priorities in 2012, we've had to make some tough decisions," said Chief Financial Officer Hugh Johnston. "As a result, 2012 will be a year of transition, one in which we will make the right investments to position PepsiCo properly to achieve long-term high-single-digit core constant currency EPS growth." For 2012, the Company is targeting mid-single-digit core constant currency net revenue growth, in-line with its long-term target. It expects a decline in core constant currency EPS of approximately 5 percent from its fiscal 2011 core EPS of $4.40, reflecting a combination of strategic and macroeconomic factors, primarily:
?
Marketplace Investments: In 2012, the Company will step-up its strategic brand investments by $500-$600 million, particularly in North American beverages and food -- the benefits from which will be increasingly seen in the second half of 2012 and into 2013. Further, the Company anticipates a larger increase in consumer-
facing spending through marketing efficiency initiatives. Additionally, incremental investments in routes and display racks will total about $100 million in 2012.
?
Commodities: The Company anticipates a second consecutive year of global commodity cost inflation that is well above historic levels. In a different economic climate the Company would likely offset these additional costs through increased pricing. However, it does not anticipate that it can pass through all of the higher commodity costs to its consumers in 2012 given the continuing challenges that consumers are facing, particularly in the developed economies.
?
Pension/Interest/Taxes: Additionally, the Company expects higher pension costs as a result of a lower discount rate, higher net interest expense as it increases indebtedness and also terms-out debt in a low interest rate environment, and a core tax rate of approximately 27%, about 50 basis points higher than in 2011.
?
Productivity: Partially offsetting these additional costs, major productivity initiatives are expected to result in about a $500 million incremental reduction in operating expenses in 2012. Based on the current forex market consensus, foreign exchange translation would have a three percentage point unfavorable impact on the Company's full-year core EPS growth in 2012. The following table presents the key elements explaining the difference between the Company's long-term core constant currency EPS growth target and its 2012 core constant currency EPS growth target:
Long-Term Core EPS Growth Target (CC) Increased Marketplace Investments Excess Commodity Inflation Higher Pension Costs Higher Interest and Taxes Incremental Productivity
HSD
~8% (8) (9) (1) (2) +7
2012 Core EPS Growth Target (CC) On a reported basis, the Company's results will reflect charges from its three-year productivity program, primarily severance costs associated with workforce reductions. In the fourth quarter of 2011, the Company incurred pre-tax non-core restructuring charges of $383 million, and it anticipates additional charges of approximately $425 million in 2012 and another $100 million from 2013 through 2015. The Company is targeting about $8 billion in cash flow from operating activities and more than $6 billion in management operating cash flow (excluding certain items) in 2012, which will include the favorable impacts of a 10% reduction in capital expenditures and incremental working capital efficiency. The Company also expects to make a pre-tax discretionary pension and retiree medical contribution of $1 billion in 2012.
~(5)%
Dividend Increase/Higher Share Repurchases
Reflecting the Company's commitment to return capital to shareholders and confidence in its long-term growth targets, PepsiCo today announced that it will raise the annualized common stock dividend, effective with the dividend payable in June 2012, by 4 percent to $2.15 per share, the 40th consecutive year of dividend growth. The Company anticipates increasing share repurchases in 2012 by at least $3 billion, which will be financed by operating cash flow and additional debt. Long-Term Financial Targets PepsiCo provided its long-term target of mid-single-digit constant currency net revenue growth. It also announced that it is targeting long-term core constant currency operating profit growth of 6-7%, and long-term high-single-digit core constant currency EPS growth after a transition year in 2012, driven by positive returns from executing its strategic initiatives.
About PepsiCo In its global portfolio of food and beverage brands, PepsiCo has 22 different brands that generate more than $1 billion each in annual retail sales. Our main businesses also make hundreds of other enjoyable foods and beverages that are respected household names throughout the world. With net revenues of over $65 billion, PepsiCo's people are united by our unique commitment to sustainable growth by investing in a healthier future for people and our planet, which we believe also means a more successful future for PepsiCo. We call this commitment Performance with Purpose: PepsiCo's promise to provide a wide range of foods
and beverages for local tastes; to find innovative ways to minimize our impact on the environment, including by conserving energy and water usage, and reducing packaging volume; to provide a great workplace for our associates; and to respect, support, and invest in the local communities where we operate.
Cautionary Statement: Statements in this communication that are "forward-looking statements," including PepsiCo's 2012 guidance and long-term growth targets, are based on currently available information, operating plans and projections about future events and trends. Terminology such as "believe," "expect," "intend," "estimate," "project," "anticipate," "will" or similar statements or variations of such terms are intended to identify forward-looking statements, although not all forward-looking statements contain such terms. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties 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; PepsiCo's ability to compete effectively; unfavorable economic conditions in the countries in which PepsiCo operates; damage to PepsiCo's reputation; PepsiCo's ability to grow its business in developing and emerging markets or unstable political conditions, civil unrest or other developments and risks in the countries where PepsiCo operates; trade consolidation or the loss of any key customer; changes in the legal and regulatory environment; PepsiCo's ability to build and sustain proper information technology infrastructure, successfully implement its ongoing business
transformation initiative or outsource certain functions effectively; fluctuations in foreign exchange rates; increased costs, disruption of supply or shortages of raw
materials and other supplies; disruption 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 collective bargaining agreements or strikes or work stoppages; failure to successfully complete or integrate acquisitions and joint ventures into PepsiCo's existing operations; failure to successfully implement PepsiCo's global operating model; failure to realize anticipated benefits from our productivity plan; any downgrade of our credit ratings; and any infringement of or challenge to PepsiCo's intellectual property rights. For additional information 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 cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. PepsiCo undertakes no obligation to update any forwardlooking statements, whether as a result of new information, future events or otherwise.
Glossary Core: Core results are non-GAAP financial measures which exclude certain items from our historical results. In 2006, core results exclude certain tax adjustments and restructuring and impairment charges. In 2011, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, restructuring charges, an extra week of results, as well as merger and integration costs and certain inventory fair value adjustments in connection with our acquisitions of The Pepsi Bottling Group, Inc. (PBG), PepsiAmericas, Inc. (PAS)
and WBD. With respect to our 2012 and longer-term guidance, our core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, merger and integration charges, restructuring and impairment charges, and the impact of certain hedging contracts in connection with our acquisitions of PBG and PAS. For more details and reconciliations of our 2011 core results and 2012 and beyond core and core constant currency guidance, see "Reconciliation of GAAP and Non-GAAP Information" in the exhibits attached hereto. Constant currency: Financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period. In order to compute our constant currency results, we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior year average foreign exchange rates. Management operating cash flow: Net cash provided by operating activities less capital spending plus sales of property, plant and equipment. This non-GAAP financial measure is our primary measure used to monitor cash flow performance. See the attached exhibits for a reconciliation of this measure to the most directly comparable financial measure in accordance with GAAP (operating cash flow). Management operating cash flow, excluding certain items: Management operating cash flow, excluding: (1) discretionary pension and retiree medical contributions, (2) restructuring payments, (3) merger and integration payments in connection with our PBG, PAS and WBD acquisitions, (4) capital investments related to thebottling integration, and (5) the tax impacts associated with each of these items, as applicable.
doc_190110550.docx