Full Year 2021 Diageo PLC Earnings Call (Q&A Session)
Good morning, and welcome to day Icos preliminary results Investor Q&A call.
<unk> call is being recorded.
And your call today will be hosted by <unk> C E.
Ivan.
And lasagna.
P S O.
To ask a question please signal by pressing star 1 on your telephone keypad.
And you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
We are now ready to start the call.
Evan Please go ahead.
Thank you Lee and Hello, everyone and thank you for joining our preliminary results call for fiscal 'twenty, 1 and I'm delighted to welcome <unk>, our new CFO Robin and I are sitting and Bopped Royal and our office.
Sunny day in London, and a rare occasion, but great to have you yet.
Hi.
And I hope you've had a chance to read our press release and watch our presentation and webcast on <unk> Dot com.
<unk> delivered an excellent set of results and fiscal 'twenty..1 we performed very strongly across all our key financial metrics, while continuing to invest and long term growth and building on our success.
Robert Mitchell ESG track record.
Organic sales up 16% and fiscal 'twenty, 1 and up 6% compared to fiscal 19 and on a constant basis.
All of our regions grew organic top line with 3 of the 5 growing net sales above fiscal 19, and a constant basis.
South America, our largest and most profitable market performed particularly strongly.
Also delivered excellent cash flow generation.
Our strong foundation going into the pandemic enabled us to respond quickly to changing consumer trends and we have emerged stronger.
Benefiting from our broad geographic footprint.
And well positioned portfolio data analytics, and tools and creativity and our lean cost base, we upgraded our investment and effective marketing and consumer led innovation and we gained or held off trade market share and over 85% of total net sales and measured markets.
Creating strong momentum for sustainable long term growth.
While we expect near term volatility and some markets. We believe we are well positioned and fiscal 'twenty 2 to benefit from both the resilience and the off trade and the recovery and the off trade.
Optimistic about the growth prospects for our industry.
And for Dr. Joe Spirit continues to gain share of total beverage alcohol globally and premium monetization trends remained strong.
And the 5% increase and a final dividend and the restart of our capital return program in May.
Reflects our confidence and the long term outlook, while delivering consistent returns per shareholders.
And that holders.
Before we move to Q&A I'll, just turn it over to love and they have to say a few words.
Thank you Ivan.
Im honored to be stepping into the role of CFO.
And especially at such an exciting time of growth, but yeah sure.
I look forward to building on Kathy tremendous achievement partnering with.
With Ivan and the team to drive sustainable topline growth, while using productivity for nabors, Mark reinvestment and drive value per shareholders.
And my guys all our CFO also North America.
Matt and I know firsthand how effective yes here is when we make focused strategic choices and investment.
And he'd behind them.
I have had the chance to meet many of you I look forward to meeting with you all haven't let's say.
I'll now hand, the call back to the operator to open the phone line for your questions.
Thank you.
Okay.
We will now take.
First question from Simon Hales from Citi. Please go ahead.
Oh, Thank you good morning, Ivan and and <unk>.
Welcome to the value to you and your new role and I have 3 questions. Please.
Firstly.
We've obviously seen a significant weighting of marketing investment through.
And of 'twenty, 'twenty, 1 and more generally and in recent years, Although you talk about and your outlook statement.
And these ought to continue that reinvestments as we look forward as well, but how should we think about the overall rates of investment.
In 2022, and beyond and we think develops as a percentage of sales I'm just trying together.
True and the idea of where things are headed where you'll spend per hour, which is really all in 2020..2 so that's the sort of first broad question and secondly, and what if you could talk a little bit more about the inflationary pressures that day.
Youll seeing as we head into the new fiscal year is that more and the distribution and logistics side or is it sort of on the Cogs.
So I think you're starting to see and some building pressures. There is there any skew between H, 1 and H 2 let me think about how that will hit the P&L from a modeling standpoint, and I have conflict until you and your ability to pass some of those things through in terms of pricing.
And then finally, just a quick 1 around the tax rate guidance.
What.
So it was really if that sort of higher tax rates of 22 to 24 per cent going forward. Please.
Great. Thanks, Simon I'll take the first just to give you a headline on an inflation, but then turn it over to love and new and inflation index.
Marketing investments, so I would say that the way to think about.
And the draw approach and philosophy is.
Number 1 we see good quality and sustainable growth and this category full day argue the premium position and trends are strong spirits, gaining from beer and wine secondly, our tools and analytics of understanding and marketing effectiveness as we've talked about before is.
And I really feel very good about and they keep getting stronger and better.
And third the shape of the economics of our P&L.
And with very positive price mix and strong cost discipline.
And everything that the consumer doesn't feel and touch.
Uh huh.
US the confidence that we have the ability to deliver margin expansion as you saw and these results while up weighted marketing.
Now having said all of that we don't have a percentage of sales philosophy for the next few years, we actually build our marketing investment plans bottom up and teams have to justify.
Good, but our orientation is to invest behind quality sustainable growth.
We can deliver strong economics with that.
So the argument is well funded in terms of our levels of marketing investment right now our share of voice is very strong we've significantly up.
And the media spend across the markets and you can see the results and market share.
Because we've put an enormous focus on what we call quality market share and.
And we really assessed carefully it has to be brand equity and consumer led market share performance. So I'm feeling good about where we all could you see us.
Weighted sits yes, you could but we're not we don't have a strategic posture to upgrade our marketing spend and the gear that we kind of build it on the basis of the business case and the opportunities we see but I certainly certainly our orientation will be to lead and to invest wherever you see the opportunities.
Increased suddenly get the returns as hopefully you can see and these results.
Uninflated and Alterra and number 2 love and then I just have a headline comments I'd like to make which is.
The nature of the <unk> businesses, we can take inflation and now strikes and the nature of current inflation.
Talk more about what we're seeing happening.
And again, it starts with strong mix and trading up and.
And these numbers our reserve brands the top 25% of our portfolio was up 36%.
And the Johnnie Walker Blues, and Gotham Eagles, and Xerox of the World.
And as you know those are higher margin businesses.
We.
And doubling down on our cost productivity, which has been now and muscle the company as well.
Our brands are strong just to your earlier question and brand health.
And as strong so our ability to manage price and mix as well as strong and then the final point I'd say categories like whiskey.
Dubbed the Johnnie Walker Black label, and we sell today, it's useful to remember.
The liquid distilled and at least 12 years ago.
And so we do have a buffer and the nature of.
And stocks and how they flow through the system, but I'll turn it over to love and you had to address the specifics from inflation.
So Simon to answer your question on inflation.
Perfect and you ask where are we seeing it come through is that day.
Paul.
And let's just take it.
It is in both cases.
Ladies and <unk>.
And has been around 8% and what we're seeing come through now.
Picking up.
Yeah.
And if it and we're definitely seeing the pressure.
Commodity perspective.
And corn Dominion and.
And are all going up and somebody distributions logistics perspective, it's really supply and demand and as a.
And demand has picked up.
Right.
And that's gone up.
And I won't comment specifically about if it's going to be higher and lower from a marketing perspective hospital and restaurants have to I think I think it's a it's hard to predict and therefore.
All the time and time, but.
And we definitely see inflation is picking up.
As Ivan.
And that you know we have multiple tools.
Tools, and our center to to deal with inflation.
First and foremost I think 1 of the biggest 2 especially habit its opinion legislation check.
From a hotspot growth has come from the Super premium slot.
Part of our portfolio.
And fiscal 'twenty 1.
And aside from.
<unk> mentioned this part of our portfolio of assets and market.
The second thing is volume leverage and grow.
And 11% volume and fiscal 'twenty, 1 and I think that's the big differentiation versus a lot of progress.
CPG businesses and.
And that enables us to.
Really.
The cost assumptions and Thats.
Closer to the bottom line.
And the third is we are able to take pricing.
Whereas it is required I mean, we've taken pricing on.
And babies and North America.
And higher inflation market success, Nike and Turkey, we've taken several dollars per pricing.
And we've been successful and growing the business and all of these places Bally's and North America is up 31% on 17% volume growth.
And so it is.
And we've really been able to demonstrate our ability to what I would call walk and chew gum at the same time and the last thing I would say is our.
And our culture of everyday efficiency.
And with Jive and traffic to Australia embedded into our culture and now in fiscal 'twenty 1.
Everyday efficiency with EBITDA.
EBITDA offset inflation.
And so going forward with confidence and our ability to take.
Take inflation and a strike and.
<unk> continues to support up then stop as they deserve to be.
Your next question was on tax rate.
I'll be brief on that I mean, I think it's a comp issue.
This year, our tax rate went up our effective tax rate went up from 21, 7% and fiscal 'twenty to 'twenty, 2.2% and <unk>.
Fiscal 'twenty, 1 and it's really a combination.
Drivers, but the biggest 1 is mixed market.
And so assets.
And as our business growth and and market such as China and the U S.
Our tax rate our effective tax base has been decreased as we look at fiscal 'twenty..2 that is going to continue to be a factor.
Resulting in fee.
And our tax rate guidance going.
And in addition to that I mean, there's.
Net.
No next day or no.
Factors, such as the proposed increase and the U S Pet line great.
Don't know exactly how much it will be our book, what's the timing is but you're kind of assuming like now that it will happen sometime during the.
Of course, a fiscal 'twenty 2.
And in addition to that.
Overall, the tax environment with with governments and speaking to.
And recover.
From the impacts of Covid is and the <unk>, 7% and treatment.
On minimum.
And should we expect all of these to contribute to that.
The <unk>.
And the higher effective tax rate and our guidance, but also the wider.
Range that we have put it out that effective tax rate guidance.
Brilliant.
Thanks Luke.
We will take our next question from Sanjay <unk> from credit Suisse.
Hi, Al even love and Yeah, a couple of questions from me. Please firstly on the U S. Ivan.
The comments Youre talking about the market.
Reverting back to mid single digit levels from this high base I guess, given the importance of tequila and now in your portfolio and the significant weight and marketing spend you've had and it seems like youre going to continue on that journey. What would you expect to be growing ahead of the category.
Through the F 'twenty 2.
And Mike.
Second question is really on margins again, I appreciate you're not giving any guidance for F. 'twenty 2.
When I look on an organic basis, I think you'll you'll margins at the end of F. 'twenty..1 is still 170 basis points from the last 19 levels.
And expect to fully recover that and the fullness of time over the next kind of 2 to 3.
3 years and how should we think about that thank you.
Okay I'll take the first and.
And to love and you're on the module and the.
U S market, Firstly, we clearly see the U S.
Industry momentum our remaining robust.
And the entre.
Comes back it is coming back strong.
I Love the American consumer.
Enthusiasm to socialize outside the home blue bars, and restaurants, and food and and we are by the way also growing market share in the recovery of the entre to the extent that you can measure it through NAPCO.
And what we pick up from our distributors were doing very well and beyond Covid recovery.
Going forward, what I'm really pleased about is the share momentum and the U S.
And you may or may not have seen the most recent Nielsen that just came out yesterday or a couple of days ago, even and the last.
4 weeks that momentum is continuing.
And so if you look at the last.
12 months 6 months 3 months.
Our share momentum has steadily improved and we're now running 50 to 60 basis points of market share gains and the last month and 3.
That's in part is driven by.
The momentum and the portfolio, yes, Tequila is strong and we still see a lot of runway for.
Tequila business.
Both Don Julio and <unk> are doing really well.
But it's also the full portfolio.
Pretty business Crown Royal Johnnie Walker, and Belize, as you saw and these numbers up 31%.
So I expect us to continue to.
We are in a position, where we should be able to outperform and gain share as we go through fiscal 'twenty 2.
Yes.
Thank you.
I'll answer your second question on margin.
As we.
<unk> discussed and are.
And that's why.
Yeah.
No.
Part of what has caused that margin pressure has been.
Great.
You know what.
And market makes.
The cyber business.
And our pocketbooks for yes, exactly yes.
A.
And second market.
Portfolio and then the second piece of it.
On the day.
It could be in fact adopt assets.
Especially in Europe and Turkey.
And that's that.
And that has also led us to be.
And significantly impacted from a margin perspective, good question and do we expect margins.
Yes.
Pavel.
19.
And just to match it up.
And then the covering from Covid and I see it as a cost business growth.
And are.
And we get we gain back our beer business and beyond trade into Europe.
And those with.
Substantially all costs to recover margins back to 19 Glover.
And on top of that you know all of the things that I mentioned and my last answer to to Simon premium amortization and volume leverage.
And the combination of revenue growth management.
And supported by headline pricing will also be key drivers and us being able to couple of margin over time.
Yeah.
Alright, thank you.
Okay.
Yeah.
We will take our next question from Andrea <unk> from Bank of America.
Good morning, Ivan and good morning, Roger and yet 2 questions. Please.
First 1 on your outlook commentary, where you say that you expect near term near term volatility and in some markets.
Are you seeing anything.
And are you, referring and when you say that to anything specific that you're already seeing maybe any markets.
<unk> rated or is it more of a general comment and potential risk of Lockdowns and.
You flagged and you are in Europe, and the prepared remarks is a market that could be volatile elsewhere, where do you see from.
And then the 1 on the U S. A you were saying you were referring to the last.
3.6 months, where you've been gaining share and this has come across clearly and are in the day to we've been seeing how would you see the and since the reopening and since you've been facing the difficult comps and the the more difficult comps and the off.
How would you see the housing market is performing and the last 3 or 4 months would you have the numbers to the market Depletions.
Yes so.
Andrea.
Take the first and Bob can.
Cover the second from the U S market.
I think we we don't have a particularly more sophisticated crystal ball.
How the virus and the pandemic impacts are going to play out.
And are there.
So we don't have we have scenario and obviously, we modeled against scenarios.
I mean I am.
And obviously optimistic and come from however, we know the nature of.
And of the pandemic that.
Things can turn quickly and so.
And that's what's reflected in the statement and Thats also a portion and not giving guidance because.
And it takes the specifics, we know what's happening and south.
Africa right on off on and off and it's just reopened a couple of days ago.
And they go into prohibition and again, good and Theres been up and down parts of Southeast Asia are tough, Indonesia with I'm talking about the virus and the pandemic.
So it's.
It's no more than that it's not.
We don't have any particular geography, we are concerned about I mean, we are hopeful that the European reopening will continue and the U S reopening will stay.
Andrea and momentum that I talked about earlier.
So that's that.
That's what's behind that statement there.
It isn't.
And in particular.
Specific concern and and 1 geography.
Just recognizing that.
There's still.
With the with the Delta variant and the numbers going up and down and that's that.
And that's why we just wanted to be cautious now we're very much focused.
We can control and what we can drive and.
And so building our business gaining market share I mean, that's what we're focused on.
And.
That's the second part of your question on cash.
And tenths of the B U S market with what we're seeing happen here of.
Based on what day of 4 months with a very strong free opening up the on premise.
Bye.
Our estimates about 85% of beyond premises is now open and.
And what we're seeing is what we predicted with the daily consumer is coming back to celebrating with.
With a lobby and friends.
And enjoy and got a wonderful cocktail and.
And that neighborhood bar or a restaurant and Ah so.
That's essentially what we're seeing in terms of the market itself. I mean, we think the market continued to be and he says to me.
And more.
Importantly, what we are really proud of is that we are continuing to gain share.
And the market, both Nielsen as well and snapped up where we're growing share.
From here on our U S.
Business both at the.
Chris as a percentage of spirit, but equally.
Fortunately, we are growing share of total beverage alcohol.
And I just.
Just a quick follow up on backlog and your own and you say about 85% sold out glitch hub have reopened and when you think calls on trade spend and would you say that I mean, and the recent month or 2 on trade spend.
Back to very close to pre pandemic levels and the U S.
Yeah, it's I mean beyond.
And beyond trade there is geographic differences, but if you look at Florida, and Texas and absolutely back and ahead.
And it is coming back strongly so as I talked to our distributors.
And she and the last few days I mean beyond Covid recovery is.
It's definitely.
But very close back to pre pandemic levels, if not ahead of it.
So.
And it's coming back strong with premium brands, tequila, and spirits and doing very well and.
The recovery.
Beyond crude so we're feeling good about it and.
Our market share as I pointed out where you can measure it as NAPCO and about 15 states.
And we're gaining.
From share in the recovery of the on trade and those metro markets.
And very clear thank you.
Okay I'm sorry.
<unk> other point I should've mentioned on volatility.
As G T global travel.
And that's gonna be a slow recovery.
That's also a little hard to predict the pace at which our global travel will come back.
Yes. Thank you.
And we'll take our next question.
And the Olivier and Nicolay from Goldman Sachs.
Hi, good morning Ivan.
And you all I've got 3 questions. Please.
Yes on the on North America.
Strong step up and marketing investments are the best industrial service and this year should we.
Spec marketing investment to continue to grow our had effect from these already.
And if you could level going forward or could we actually expect some operating margin and progression to resume in North America and in the midterm.
And secondly to stay on to U S.
You mentioned and this price increase for guests Amigos, which makes it a lot of sense considering the demand.
And when I look at.
From the numbers are on page 8 of the press release.
Price mix for Don Julio appears to be negative so he's got to and then.
Hotels trying to change or what your price positioning between those 2 Brian which is so far.
The team at all or is it me just reading a bit too much into these things just a question of timing and just.
Last question is you will re up you are reopening actually a few distilleries. So both and then Paul Hall, and you've made and lots of investments and in Scotch and in recent years now do you see single mode, playing a bigger role in the reserve portfolio going forward and can we also expect direct to.
Consumer service to become a much bigger and the future. Thank you.
Okay, Olivia I'll take your second and third and coming back to the North America, and our investment and margins.
Donald.
I think what youre seeing and the dilutive number which is purely.
And the mix is probably more.
Blanco and <unk> and <unk>.
942, which is the Don Julio and 1942, which is the single biggest luxury brand and the United States.
And with constrained supply.
So.
Don Julio is really.
And.
We're taking price we're not going discounting this brand we don't have enough.
And it's probably the mixed effect that you're referring to which is more blanco and let's wrap with auto and unveiled and 1942.
The only data point I will give you which is and the state of California, which you know is the most.
Most developed tequila market and the United States.
Julio is now the number 1 ultra premium tequila brand and.
And it's so the health of this brand is really really strong.
And on our investments yes.
Really delighted about more and.
That's been.
And bra and Port Ellen.
Flow rates, producing our portal and it's going to open next year.
And we now Scott strategy, we clearly see opportunities for continuing to build.
Johnnie Walker, and Buchanan's and accelerating the growth and malls, but even.
Even within blend and so on Johnnie Walker.
GAAP and Johnnie Walker is where we're seeing acceleration and we've got some very exciting plans and blue label, where again we are.
Sure.
The good growth, but we believe we can get.
Significant growth on Blue and gold and Green.
And the higher marks and Buchanan's, but malls are definitely on trend.
And we have I'd say, it and our very clear strategy and investment behind and building the multi brands and building the top end of it so a brand like Mortlock, which we really want to build and it will be slow.
But we intend to build more block as the pinnacle of malls.
Over the next 5 to 10 years, and we're investing behind it and and.
Ultra liquid constrained but.
There is a nuclear mall strategy for which I think is going to be very exciting and accretive from the out year.
Flow.
The other day your first question and I said North America marketing investment.
How do we think about North America marketing investments and talk with things that you know.
Despite our strong growth in North America, and the business is 20% growth, we ought to go and be at 7.
I'll start with average alcohol.
And despite the 79% growth Dropbox Tequila business, we absolutely are 10 share.
Kayla statically. So we believe we have a strong runway for continued growth and.
And that's really what drives our.
You know our our decision to continue to invest strongly behind our brands.
We of course measure our marketing investments very carefully we have discussed several times before tools, such as catalyst, which enabled us to ensure that we are looking at.
Staffing and persimmon.
And making sure that.
And they're always ensuring that we and supporting our fastest sufficiency.
The second thing that I would say is oh yeah.
Leverage that we have to drive operating margin.
Volume leverage.
And we grew.
Volume and more.
And just North America, we get we gained substantial operating margin due to the leverage again.
Again, as we go out the senior part of our portfolio and everyday efficiency and the.
The last thing I'd say is you know I know.
North America margins has significantly accretive to the true margin so.
And accelerating investments behind the North America business.
And growing North America disproportionately it looks like the assets.
Thank you very much.
We will take our next question from Trevor Stirling from Bernstein.
Okay.
And all of them and love them here and.
2 from my side piece and the person I think from your page 13, and looking at a comparison.
And without travel retail and get us what am I right and thinking that if you had a full recovery and travel retail and the G P and L a and adult and trade you're probably looking at about 6.
Good morning sales coming back a bit.
And really a bit more on margin.
And the second question, maybe for items and looking at your 2 your takeaways from Latin America, 5%.
And with travel retail still depressed and a very strong recovery I Wonder if you could give us just a bit more color on what's driving that strength and Latin America.
Percentage shows I can start with Latin America.
Actually if and when we were sitting here 12 months ago.
I would not have expected the pace of recovery, we've seen and Latin America.
And it really is quite broad based we're seeing very good.
Good growth across all the markets.
Brazil has had to establish and growth.
Well, 50%, Mexico and strong Scotch whiskey is coming back very strong and it's not just the primary whiskey, where we had a big.
Good success with black and white and.
Whitehorse.
And those brands.
Canons and Johnnie Walker has also come back.
Really strong so.
Uh huh.
Here's what's happening we are again very tiny share player and the TBA markets of Latin America.
Focus has been very much on growing share of TBA and looking at.
Patients and which we can picture also from bip.
And in the auto locations through the locked out and I'd say our teams our marketing.
Approach and commercial execution pivoted very strongly to winning and that at home location.
And.
Premium brands came back.
You have really strong so Johnnie Walker is up.
The 29% Buchanan's up 23% all pause so I'm feeling good and the margins have come back and <unk>, which is also really encouraging I mean, we had.
I think over 600 basis points of margin improvement and LEC.
So with Alberta.
Ram heads up Latin America right now.
We are setting our sights and really ensuring that this business can really be it's high margin.
And can be really growth accretive for <unk> and <unk>.
And.
Alberto and the teams across those markets kind of.
Exciting strategy.
And how we can go about it but.
<unk> vibrancy and health is really encouraging and the premium amortization trend all of that and supporting what you see and these numbers and come from Latin America.
We will continue to be really good.
Growth engine for us.
Strategy on your first question.
Yes.
And your interpretation of that is correct.
And if you exclude the impact negative impact that we've had on our business from.
The shutdown of.
The corporate travel business, which is down 62%.
Just last here.
And with plenty of runway.
And.
And the impact.
Oh goodness.
Which in terms, but flat in fiscal 'twenty 1.
Do you all think there's been a big.
Kind of regional mix difference.
And again its numbers.
Our our 2 year compounded annual growth rate versus fiscal <unk> would have been 6%.
So that's exactly what we were trying to communicate and best shot.
Yes.
I hope that answered your question.
Yes, Thank you very much and day to both of you.
We will take our next question from.
Mitch Collet from Deutsche Bank.
Good morning.
I have 3 questions and.
Firstly can I ask if you can comment on stock levels.
And particularly in the U S.
I'll get back to normal now everywhere or are there parts of your business with stock levels or below.
Below or above where they would ordinarily day.
And secondly, just to go back to the increase in marketing.
And it's up about 17% on a 5 year.
And in absolute terms and I think as a percentage of sales. It's the highest we've ever seen and I know you've commented then that you want to keep investing but should it be a constraint to profit growth in F. 'twenty, 2 and and also I noticed you mentioned it was 1 of the drivers of good working capital.
And so can we infer from that that the timing of marketing and investment. This year is somewhat backend loaded and then finally oh.
And you mentioned.
And in the slides to share his emerge stronger and as 1 of your key points I just wondered if you could clarify and how.
How are you mean, and what you mean by stronger T V.
Mean higher growth higher margin.
More heavily invested or maybe even with the pause.
Okay.
Sure Mitch So why don't I take the the emerged stronger and then I'll ask <unk> to address stock levels.
Marketing spend and question.
So when the pandemic hit 16.
4 months ago, we stepped in and suddenly a very clear focus and February March of last year.
Around.
What we wanted to do with this company to a much stronger and what that meant was a couple of important things 1 is quality market.
16 months was our focus we were not focused on financial plans and you know markets were.
We removed the annual plans that we had in place and we said to every market and business around the world.
Focus on quality market share now quality has.
As a.
Big definition that goes.
And shaft, which is all.
And all about price and mix and building brand equity and investing behind it and the <unk>.
Actual execution that goes with it.
And then the second thing was to really.
Really ensure we took care of our customers our people and the communities in which we operate.
We call it and look back and.
And with it I'll look back reputation.
And as I look at where the company is today I would say on both fronts. We've performed really strongly we stayed invested to ensure that the business.
And not just and marketing investment of our capital spending and Scotland.
Our acquisitions, we went out and.
And how deviation and loan revolver and loyal 9.
So.
And obviously the financial strength of the company was important and to meet cash flow is a really important measure of if you look at our working capital disciplines and how we'd come true.
Receivables and bad debts have.
And bought in lower stock and trade is really really healthy around the world.
And so all of those dimensions, bringing us to a point, where we do feel the company is.
Stronger and that's how we that's how we that's about what we set about to do and.
We're feeling good about the platform that we're on net.
Nevertheless to fiscal 'twenty, 2 and beyond.
Governor mix.
And in stock levels as Ivan said, we have today.
And with well stock levels.
They're still not on a global basis is still not back to pre COVID-19 never and.
And it's really.
And this comes out and thought the culture that we have faced over here and I'll say the last several years and stuff.
And I came into the crisis with healthy stock levels.
In terms of what we've seen happened with stock levels and North America.
And the <unk>.
And we think that we've seen like in fiscal 'twenty as we enter.
And good fiscal 'twenty, we saw a.
Destocking and the market and it was really driven by the uncertainty and the volatility that existed.
And Cleveland exiting last fiscal year.
And the hesitancy and all sorts of distributors and retailers supporting highest stock.
And that was as well as our design.
Desire to match our standard to sell out.
And so what we've seen in fiscal 'twenty, 1 that city, the depth and Michigan.
Those inventory levels.
Still below historic levels.
And.
But now at a comfortable space a place is what I would say.
Your other question on.
On working capital and.
Could we feel.
I think your question was was it back weighted and.
And is that what was marketing spend back weighted and the stock was costing the working capital increase.
In fiscal 'twenty 1.
We.
All right.
Want to ensure that our marketing spend is.
Not just with <unk>.
And what's happening in the marketplace and so we try to spread our marketing spend across the.
To best support our business in line with.
And how the market is evolving what we have seen at the end of fiscal 'twenty..1 is up weighting of marketing spend in certain regions and markets, mainly driven by out the entre and opens back up.
In North America.
<unk> 85 per cent of the on trade is back open and that started to happen in March April may.
May and June we were keen to invest in and support Barca restaurants, as they open back up and support our business and the and the answer the.
And the second thing that has also impacted working capital spend is.
Production levels.
Hum.
From out of this year.
And with strong growth rates.
Which has required us to.
Pick up production versus where the book at the end of last year, where we were actively pulling back on spend.
It's just accretionary spend.
That's very clear thank you.
And he will take our next question from Edward Mundy from Jefferies. Please go ahead.
Morning, Ivan with 3 questions from me as well please.
Yes.
And I think and <unk> said that you had.
<unk> grin of trade market share and 70% of take from that portfolio and thats risen to 85% and the end of the year could you talk about what the big maintenance flow and what really drove that.
The second question from the U S market I think Ivan you mentioned that you expect U S market to revert back to sort.
The folks from run rate of mid single digits, I think historically youre joining us for <unk>.
That's good.
And Mr Square and more than 4 do you think I've seen and multiple.
Total home and multiple premium spirits.
And then the third question.
And talk about the.
Focus on everyday efficiency and you'll see I just don't.
On an awful lot the last 5 years or so are there any learnings from some of the other companies.
And can apply to Doj when it comes to sort of really driving everyday efficiency.
Okay.
Okay I'll take the first 2 just on the market share.
And.
<unk> reported I think if you read the fine print.
We've added some more markets are actually the market share momentum hasnt changed on a real basis.
Does.
The basis on which we are reporting the 85%.
And is a bit different.
So it's consistent to where we book.
And the first half broadly.
But it's still very strong performer.
And if you look at where we are in the most important market the U S.
Pretty much all of Europe.
Small exceptions with significantly gaining share and.
Across Latin America, actually Mexico, which was losing share and the first half is now.
And in the second half is gaining share so most of our markets and Latin America gaining share.
And we have pockets, where we're behind buckets and southeast Asia, where we are not quite as gaining share yet.
And.
We have.
And the beer business and Nigeria are little behind but.
It was done and astonishingly well.
And in Nigeria, So overall I'd say the health is strong.
We're also losing a bit of share and Canada.
Where.
Were underperforming the market.
And.
And the U S market I think your point is.
It's.
Our assessment is that should be a bit of an uptick, but it's hard to quantify and it's early and there's a lot of dynamics that work with the recovery of the on trade and and also the return to work is that phenomenon and we need to understand the extent to which it happens and how it impacts consumption occasions and.
So what I've always said.
And is considered the pre pandemic trend as the floor.
Because the core drivers of consumer demographics premium amortization.
And spirit is growing faster than beer and wine, we believe all of those will continue.
And certainly as the opportunity for it to be higher and.
And I think we just need to see we don't we don't have.
I'd be cautious to declare it what I am comfortable saying is the pre pandemic level as the flow, we certainly intend to keep the vibrancy.
Fee of spirit.
<unk> category very high as competitors are as well.
The marketing innovation, that's happening and spirits continues to be.
Very effective and the categories, so and we did see spirits penetration increased faster than wine and beer penetration.
And attrition and the last 12 to 18 months and those habits.
At home consumption should stake and discovering you're in and make solid just and.
And.
Having that delicious tanker and tonics bullet Bourbon.
Manhattan, and the rock versus the boarding.
1 or.
Boring bottled beer from the fridge, I think those habits and let's take.
So.
Cautiously optimistic it could be it could be a little higher than the pre pandemic trends.
Yes.
And on your <unk>.
Last question on <unk>.
And every day.
This should be you know what I.
I have admired India since joining.
So I think the assets 2 years ago is really the fact that our productivity and and.
Every day efficiencies truly embedded into our culture, and I've, probably from working on and our business with them and.
Lots of that.
It's not a program anymore. It's just something that everybody every 1 of our 28000 employees just to every day.
And.
Having said that the job is never done.
And that continues to be opportunities that we have there.
We're always pursuing.
I would say that.
And the opportunities and.
And the supply chain area, we see opportunity to continue to.
Simplify and streamline our.
Processes and to end.
And I thought that efficiency and.
And in shared services.
And just see availability of data and how the world is evolving from a digitization perspective.
<unk> also provides tremendous opportunities for us to continue to per SKU productivity.
So I think up I think.
Great progress and fiscal 'twenty, 1 we were able to offset inflation.
Through productivity.
And I and going forward I think we will continue to look for more.
More avenues to drive efficiencies.
Okay. Thank you.
And we will take our next question from Laurence <unk> from Barclays.
Hi, good morning, Ivan and pneumonia and thanks very much for the questions..2 from me if that's okay.
Firstly on the U S business Takeda has obviously been a stand out performer.
The comps even recent.
I have been pretty high and so the grocery chain and nail finished and elevated over days could.
Could you give an indication of what sort of level of growth you potentially you're expecting this year indicator should we expect that to slow down and so most of what you think the growth that we've seen at the end of it.
Fiscal 'twenty, 1 could be maintained.
Months linked to that is beige book percentage of U S sales at the end of this year.
Coming from Takeda.
And then my second question on the Indian business, there's been a bit more chatter and sort of U K press about a potential trade deal with India.
<unk>.
And due to a reduction and the tariff on imports and alcohol, which would presumably include Scotch whiskey.
And if any tariff was reduced hypothetically speaking would you look to reduce your prices and India.
Similar level and a commensurate level to the tariff reduction.
<unk>.
And we see and the country.
Thank you very much.
Sure Lawrence I'll take those on Tequila.
It's about roughly 20% of our business I think it is that.
The U S business.
And it's obviously very fast growing.
And the.
Uh huh.
We do see.
And I won't give you a number.
And what we expect for this year, but it's obviously going to be very fast growth.
It comes from Eagle screw, 126%.
And I'm not sure that's going to sustain but youre going to see very very fast growth now 1 of the things we feel about the tequila category going forward is.
Is that we do see a lot of runway.
I mean this category is.
If you look at the dynamics at work.
It's cutting across demographics.
Cutting across occasions, the versatility of drinks.
And the association with the health.
And wellness and forgotten.
All of those bode really well.
The other thing I would say to you it's an interesting data point.
California is the most developed tequila market and the world.
And if you look at Nielsen sales Tequila is about 20% of spirits and California.
A lot of the country is still sitting at about 10%.
And do it.
So this trend has a lot.
To run and what we're really excited about is it's happening at the top and right. So our growth rates.
The growth rate from the tequila category, because the acceleration that's happening.
Turning to the top and price points.
So we feel good about that on tariffs.
It's the discussions between the UK and India happening.
It's more promising than ever before.
Obviously too early to call.
And what may happen.
We expect there to be some.
Gains hopefully and the next year or 2.
I mean, clearly we will have to reflect our pricing.
And.
If he had elimination of tariffs it will impact the pricing and the marketplace, but we also have.
Paul 1 other and pricing on brands like Johnnie Walker.
But the bottom line is we would see an acceleration and our Scotch whisky bundled and Orange and Scotch whiskey business.
What tariffs to come down and we've modeled all of those scenarios.
And.
Well, we'll see it through and the next.
Depending on where the talks get to between the UK and India.
So it's more encouraging than it's been let's say in decades, and we have scenarios of the amount of whiskey will need to lay down and Scotland.
Tariffs come down it is going to impact our plans.
Zero.
Thank you very much.
We will take our next question from Alicia Forry from Investec.
Hi, good morning, and thanks for taking my questions I've got 3 please.
The first 1 is on your guidance from margin expansion.
And FY 'twenty 2.
Does this include an assumption of price increases to recover the slightly higher cost inflation that you have mentioned or Ken efficiencies cover that inflation, yet again in FY 'twenty 2.
And secondly.
You mentioned, having taken some.
And successful price increases and.
Lac and in Africa.
Also mentioned al.
Where are some down trading and a few of those markets. So.
And I, just wonder if youre thinking behind taking price and those markets at their various stages of recovery across.
And the emerging markets Atlanta escape.
And my third question is on Africa, where.
And it seems like you've made a quite a big focus.
On the off trade and on and e-commerce, and both of which.
Historically had been a bit challenging in that region. So I was just wondering.
And how you've gone about making the African off trade work for Ya man. So successfully thank you.
Sure Alicia why don't I take Africa, and Latin America and.
And do the margin and price increases.
Africa business.
Which by the way it is.
Strongly on trade driven the beer business has a lot of on trade out of home consumption.
But we did as you pointed out we did pivot and strongly and the off trade.
Our business is up 20%.
We had good growth across all the regions.
Bill.
Their business was up 19 spirits up 21, and get US actually was really strong and Africa up 32%.
So we did a few things and Africa.
Like everywhere else and the world and the shift to on premise off premise.
In marketing and commercial execution, we stepped up significantly.
<unk>.
In markets like Uganda.
And we went into home delivery e-commerce platforms for home delivery.
And with border Botos, guys on motorbikes, who would deliver your beer and spirits to the home.
And we did the same so we've pivoted.
I'm kind of working with e-commerce platforms that developed and these emerging markets and I'll.
I'd say that that's in part as well.
Helped us to sustain.
The growth that mainstream spirits has done very.
Very well and Africa, and where we.
And really glad it was up 29.
And percent.
And that business is nicely building for us and it's margin accretive for US is a locally made spirits.
And.
And that lends itself to at home consumption and.
And off trade as well and so thats been part and what supported our growth.
Yes.
Your first question and they share with symptoms of a guidance on margin expansion and will this include pricing.
I'd say that price and just 1 offs and levers that in our arsenal to be able to drive margin expansion, but you know the.
Or obviously volume is average makes.
It makes that premium amortization and deeper turn off.
And the growth.
Growth of Scotch whiskey growth of the more premium.
Portfolio and that's by let's say they turn up on trade.
Here.
Our ongoing to play a factor.
And being able to drive our margin expansion.
And and we will our objective will be to negotiate.
Pricing.
Negotiate with our customers the right pricing the acquired in individual markets as needed.
In terms of.
Your second question on down trading.
We have seen some down trading and the emerging market.
Our value Ben.
As consumers have looked for value and more challenged conditions I think the.
And may see bid business and Africa was up 20.
<unk> thousand 9%, we felt primary spot.
And Latin America, especially in the first offer per year.
And as well, but what we're very proud of is that we've been able to keep consumers in our portfolio because we have.
The breadth and depth of the portfolio to be able to.
To.
Cater to consumer needs.
Both in environments. When there is significant premium amortization and trading up happening, but also and in circumstances with consumers sales need to.
And as temporarily trade down.
So.
It's been.
It's definitely we've seen the impact of both but in both food and 50% of our growth has come from the super premium and above segments of our portfolio and other sales business, which has grown 36%. So I think.
And in aggregate I think we've clearly seen.
Far more premium amortization impacts on our business that are trading.
Okay and should we do the last question.
Thank you.
We will take and kind of question from Chris pitcher from Redburn.
Thanks, very much just a couple of questions.
Following up on the discussion around and travel retail and detection package. The details you've given up and foster the statement show that combines and they were very high margin contributor in fiscal line sales and profitability and sold it off significantly cash.
And I understand a bit more of the economics I would.
And imagine travel retail and it's much more of a variable cost business and therefore margins won't fall and very much and therefore, what as much as it goodness that is really seeing profit dropped very significantly and that show the operational gearing coming back as I normally get into an old and trade Guinness recoveries, and you would be necessary to travel retail recovery.
Secondly, on CASM Eagles, I remember at the time and the deal was announced it was slightly a headline driving price.
But the volumes are massively exceed its certainly our expectations at the time, even with higher agave costs and I would assume some incremental capital investment have you covered cost of capital this year in which case.
And that would be.
Positive indication.
The second thing I think that your question.
And the impact of travel retail and good and.
And it.
What we need to remember is that.
A significant portion of my travels.
I bet and a businesses and it.
Premium got Super premium.
As Scott and.
No.
And part of what we have seen and was demonstrated in that and.
And the and the financial statements that they have put out there.
From from the fact that we have lost.
And obviously to get portion of that.
That's a very profitable business that flow through travel retail.
And there's definitely a portion of.
It impacts that come from the reduction of AGA, and it's business as well and.
And it really you know.
It's been a cato and <unk>, we've seen Guinness Entre do poorly and Europe.
Mainly due to the restrictions of the entre.
And then on the other hand, we have seen the Guinness cans business picked up and so goodness and.
In total and aggregate.
And thats at a global level is flat.
But that mix between the value profitable on Fig business buses.
The loss of.
The loss of the onsite business versus the gain of the off trade pads plus the loss of premium Scott is what has contributed to the margin dip.
But that cash.
<unk>.
I'd say that we have been very pleased with our with.
And with the acquisition of cash Nicos <unk>.
It has.
Brian has outperformed all of our expectations at the time of facts sufficient from a top line basis.
And.
So it's a day.
Very efficient.
Model of driving our business.
And in terms of how the brand is supported and how it has growth. So yes, we are very pleased with.
The return of capital that we've had from the cosmic goes acquisition.
Just on the.
The contingent payments, you're making is there.
Not a good indication.
Well ahead of the sort of 10 year right and that's a good indication of how it's being progression and start the way to think about it.
Yeah, Yeah yeah.
We.
Our expectations. So we're really really happy with it in spite of Covid.
Prices being higher but cash flow book with acquisition through and office.
And the brands, who lends a lot of runway ahead of it.
Thank you very much good wait till the next day banquet growth.
Thanks, very much and.
Appreciate everyone, calling in and.
I appreciate your interest and the company and <unk>.
And I look forward to talking with you with many of you over the next couple of weeks. Thank you.
[noise] conclude today's presentation.
You for your participation.
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