Diageo plc (DGE) Earnings Call Transcript & Summary

Welcome, and thank you for all attending our session here and on the webcast. I am Debra Crew, Chief Operating Officer at Diageo, and I'm delighted to be here today to have the chance to introduce myself to many of you who may not know me yet, but first, here are our regulatory statements, very easy to read. Now, a bit about me. I have spent my career working in the consumer products industry. I was President and CEO of Reynolds American. And before that, I had roles at PepsiCo, Kraft, Nestle and Mars. I joined the Board of Diageo 4 years ago, serving as a nonexecutive director and was truly impressed by what I saw. So when Ivan, our current CEO, offered me the opportunity to become more involved in the company, I jumped at it. I became President of Diageo's North American business in July 2020 and assumed the role of Chief Operating Officer last October. And in recent weeks, I've been enjoying a CEO transition experience, continuing to immerse myself in the business across our regions, our supply chain, customers and key stakeholders worldwide. It's deep in my understanding of what, in my opinion, makes Diageo one of the best brand builders in the world. As I meet Diageo team members across the globe, I'm both humbled and proud to lead such a talented and dedicated group of people, who have delivered throughout a challenging operating environment over the past 3 years. They give me valuable advice. Along the way, I've tasted a couple of our products for the first time including Buchanan's Pinea and Johnnie Walker Umami, which I highly recommend. Both are in the category that is the focus of today's conversation and presentation, Scotch, which is at the heart of our business. For those unfamiliar with our company, Diageo is a global leader in beverage alcohol with over 200 brands, including Johnnie Walker and Guinness. We sell our products in over 100 -- in more than 180 countries and we're proud of our progress against our performance ambition, which you see on the screen. Our business is 36% bigger than it was pre-COVID. That's a 4-year organic net sales CAGR of 8%. And here is why we are confident in our ability to deliver quality, sustainable long-term growth. Our industry, total beverage alcohol or TBA, as we call it, is large, around $1.2 trillion globally, and it's growing. Favorable market demographics and strong premiumization trends are driving that growth, and I believe within TBA, we have the best assets plus an advantaged portfolio and geographic footprint. So today, I will discuss our leadership position and performance in our largest category, Scotch. We live in exciting times for the Scotch whiskey category. It is large and growing ahead of TBA. Over the next hour, you will also hear from Cristina Diezhandino, our Chief Marketing Officer, about how we are recruiting consumers into Scotch and driving new occasions as the consumer landscape is rapidly changing. And that's exciting because when you have an extensive and differentiated portfolio of brands that Diageo has, there are many opportunities to go after. Alvaro Cardenas, our Regional President for Latin America will bring to life how our growth algorithm is driving our Scotch performance in Latin America, where we recruit from TBA and specifically, premium beer. Throughout this discussion, you will also see how our Scotch brands are helping create a more sustainable world. Finally, along with Lavanya Chandrashekar, our Chief Financial Officer, we will take questions from those of you who are here in person, but first, I will start with the hot off the press IWSR data for calendar year 2022. International spirits continue to accelerate in total beverage alcohol and while international whiskey and Scotch are both thriving, it was a fantastic year for Diageo Scotch. We gained 121 basis points of international whiskey share; and Johnnie Walker, our iconic Scotch Whiskey brand extended its lead in international spirits by 34 basis points but more on that later. So first, let's back up and look at the category. Scotch is the second largest international spirits category, delivering 14% of the total spirits category value. Scotch has grown ahead of TBA supported by strong premiumization trends and the category has emerged stronger from the pandemic and is forecasted to continue growing at plus 6% CAGR. This growth is underpinned by the category broadening its consumer base as it recruits the next generation of Scotch consumers. People are continuing to love the flavors, craftsmanship and aspirational experience of drinking Scotch. Every region makes a meaningful contribution to Scotch sales and its geographic footprint is balanced across emerging and developed markets. And this is in comparison to other spirit categories, which are more geographically concentrated, think Gin in Europe or Tequila in North America. Scotch is the most premium international spirits category with Premium Plus Scotch worth $21 billion annually, that's $7 billion bigger than the next biggest category, Cognac. So now, let's look at Diageo's portfolio. Scotch is Diageo's largest category, representing almost 25% of our total net sales in fiscal '22 and more than GBP 3.7 billion in net sales. Our Scotch business has grown at a 9% value CAGR in the last 4 years with volume growing at 4% CAGR. This is very impressive in a category of the scale and maturity, and it demonstrates resilience and performance. And our Scotch business is highly profitable with a gross margin that is meaningfully above the group's average as we continue to premiumize the portfolio. We have a global portfolio of over 40 Scotch brands. Our leading brand is Johnnie Walker, the world's best-selling Scotch and our portfolio contains other desirable brands such as Buchanan's, the Singleton, Lagavulin and Mortlach. Diageo is the largest international whiskey manufacturer with 25% share and an advantaged position with 1.6% relative market share. We have clear leadership position in Scotch with 39% of Scotch retail sales value and a 1.9% relative market share. In 2022, the total international whiskey category grew by 12% in retail sales value, and Diageo Scotch is disproportionately fueling that growth. We delivered 30% of total category growth in 2022. We currently hold a 17.8% market share and have gained 80 basis points in the last 12 months. Over the last 3 years, we've gained 320 basis points of share. Our strong Scotch performance in the first half of fiscal '23 demonstrates our advantaged portfolio and the broad geographic footprint in action. Every region drove strong growth in Diageo Scotch over the past 4 years and you can see it here on the map: North America, a CAGR of 5%; Europe, 6%; APAC 10%; Africa 6%; and Latin America, 15%. And we are increasing the NSB delivered by our Premium Plus Scotch portfolio from 67% in fiscal '21 to 70% in fiscal '23. And within this, super-premium plus Scotch delivered to 30% of Diageo scotch NSV. I'm pleased that in half 1 fiscal '23, 76% of our overall scotch portfolio growth was driven by premium plus price tiers. So on to Johnnie Walker, which currently holds a 9.2% share of international whiskeys, and it has contributed 23% total international whiskey category growth in the last 12 months. The brand has delivered strong growth over the last 3 years with value and volume growth across all price tiers. The fastest growth has been on Blue Label, demonstrating our commitment and ability to premiumize the brand. As Cristina will discuss, this brand master fleet evolves with the times, maintaining its residence with contemporary consumers, all while preserving the integrity of the illustrious heritage. In our largest market, the U.S., we've gained over 300 basis points of category value share for 2 consecutive years and this growth has been broad-based, led by Johnnie Walker, Buchanan's and our Single Malt's portfolio. Despite our long-term growth trajectory where we will be distilling and maturing more liquid, we have an ambitious goal to ensure all of our distilleries are net 0 by 2030. We aim for a 50% absolute reduction in our Scope 3 carbon emissions also by 2030, alongside improving our water efficiency by 30%. With Johnnie Walker leading the way, we have the ambition to lead a bold transformation of International Whiskeys and Scotch towards a low-carbon world, but more on that from Cristina later. Cristina will discuss how the consumer landscape in Scotch category is evolving. Continuing to build our brands in the right markets has never been more critical. We're committed to investing consistently in Scotch to ensure we support future growth of our iconic brands. We've steadily increased the absolute amount of A&P in our Scotch business and have maintained the reinvestment rate in Scotch over the last few years. Our investment in the Scotch supply infrastructure means we can continue to expand and enhance our Scotch distillation, maturation and warehousing facilities to secure the long-term growth of our Scotch business. We're also investing in Scotch tourism, enhancing distillery visitor centers across Scotland and offering this unmissable experience here at Johnnie Walker Princes Street. Finally, investing in our environmental sustainability is a key commitment as we look to lead the category to a lower carbon future. So let me close with this video, which highlights the vibrancy of our Scotch brands, how we're recruiting the next generation of whiskey drinkers and broadening our occasion footprint. [Presentation]

Hello, everyone and it's my pleasure to be here with you at Princes Street and taking you through the consumer lens and the brand lens on what we think it's a phenomenal trajectory for Scotch, as Debra just mentioned earlier. But before we go forward and I tell you about how the landscape is shaping and how we're leveraging that change. I would like to take you backwards for a minute and refer to the very rich history of Scotch, which I think is really enlightening. As you know well, the Scotch category has been present for actually centuries. And if we were to simplify that story and what happened, we can distinguish fundamentally 4 big portions or 4 big chapters of history that can have relevance even today. So in simple words, in the say, pre-1900s, we call it the area of discovery. That's the time where the founders of these brands, including Johnnie Walker, of course, were playing with liquids and ways of producing this liquid. And I still will hear here in Princes Street, Johnnie Walker himself started to blend the whiskey because he had been trained in blending tea. And the idea of flavors and creating magnificent flavors was present from that very early age. Moving on in the earliest part of the 20th century and even to the 60s, in the -- I'm sorry, in the 1900s, as I said, it was the distribution time, 1920, 1930. And in that time, again, that entrepreneurial spirit was present. And certainly, if I use the brand Johnnie Walker as an example, the family decided to create the square bottles such that they could travel better on boats and that was a very visionary perspective if you imagine those years. And in fact, Johnnie Walker left the Port of Glasgow to go to Sydney. That was the first far away place that the brand went to and from then, expanded very quickly throughout the world. And it became a symbol of status and a symbol of the progressive nature of the brand -- that the brand had ever had. Later on in the second part of the 20th century, the '60s, the '70s, the '80s, that was the time that we call diversification because there was a real explosion of different brands. Single Malt became more available. In fact, there were some booms and busts. Some distilleries actually closed in the '80s but during that time, the category kept expanding itself in the world and truly widening its footprint from more lower end kind of products to much more expensive ones that we still see these days. And following that, from the end of the 1999, 2000 and of course until now, we call this the era of desire. And I'll speak about the era of desire in a minute, because it really captures what Debra was talking about that fundamentally has fueled this further ignition of the category for the new consumer. And so if I were to talk a little bit more about the age of desire and what that consists of, really it's the idea that Scotch is playing very powerfully and meaningfully in what consumers today regard as a luxury experience. If you think about what is -- what decodes a luxury experience, people will talk about the idea of what is craft. People will talk about the idea of exploration, flavor exploration in particular. People will value the people behind the brands and the fact there's a human phase and a lot of artistry behind those brands. And all of those elements are very present in Scotch. And in fact, you will hear from some of our brands, Johnnie Walker and certainly, the extent of our portfolio really can lean on into that space very successfully. In fact, Scotch is really well placed to benefit from what we call these consumer macro trends that have to do with how much people value the idea of treating themselves. Even in tough times, in volatile times, people will say and acknowledge that treating myself will make -- will help me go through whatever circumstances live around me. And that idea of treating yourself to an experience, treating yourself to a more expensive product once in a while, plays very favorably to what we are doing. And again, I'll bring that to live in the work. And I couldn't just fail to mention that the liquids that are behind all of that success, the numbers that you have heard, the trends that have actually taken place throughout that very extensive period is the amazing liquids that are within those bottles. And these are just a few of the medals that we won in the most recent period. In total, our portfolio in the last year or so has won about 126 different accolades from the most prestigious industry forums, and the brand Johnnie Walker alone has had 64 of those. And this is just a proof point and a testament of how the experts value these phenomenal liquids, which, of course, then are in turn valued by consumers. And so what's behind those liquids? I referred to Johnnie Walker already, the founders and the heritage of those founders and that craftsmanship that has been in existent, actually been developed throughout the years, is now in the hands of the case of Johnnie Walker, of this lady, Emma Walker, the first female master blender of Johnnie Walker. And indeed, she brings the legacy of tremendous knowledge. She was, in fact, an apprentice of the iconic beverages. You may have heard about him. He is hugely reputed in the industry and Emma worked with him for many years, and in fact, she has now succeeded him in the work. And indeed, she brings around ideas of flavor exploration and how she thinks about engaging new generation of Scotch drinkers and is a phenomenal person to engage with and hear. How she thinks about the creations that you will experience, I'm sure, throughout your visit to Princes Street today. The other big element in the engagement with consumers and the success of the category that I would like to reference is our relationship with this hugely important community, the bartender community. You will have heard that spirits brands are fundamentally engaged with consumers in various forms, but one of them that is very important is certainly the on-trade. And in the on-trade, that is bars and restaurants, the bartender and the mixologist becomes a really important person. Many people will agree with the question of, would you take a recommendation from a bartender? I'm sure each one of us can relate to that question, and answer yes, I would. And certainly, at the higher end, the more this actually is the case. We have various programs that have been working with Diageo brands for several years. One of them is World Class. World Class is our bartender competition. It has been running for now 14 years, so we have developed a tremendous amount of relationships throughout the world. The competition takes place first in 55 countries at country level. Each country will select the winning mixologist and in turn, the winning mixologist will attend a final that happens in different places throughout the years. This year, we will host it in Sao Paulo, Alvaro's home, not home, but Latin America, that is. And we'd be delighted to enjoy that. It's a fabulous community. The production of the actual creations that they do are fundamental. Scotch played a big role within that competition, as you can imagine, and Johnnie Walker is hugely featured. In addition to World Class, we have also developed another community hosting asset. We call it the Diageo Bar Academy. It leaves in different -- its analog form, as in training programs for bartenders. It also lives in a digital form. We have a site that has a very large amount of traffic every year. And in that and you can follow it on Instagram. If you have Instagram, you can see what kind of content is in there, it's actually very agile. It's very modern and contemporary. It talks about the history, it talks about the liquids. It talks about the cocktails. It talks about bartending tricks and it talks about the running of a bar, the business of bars. And so in that sense, we have managed to create and to put forward really important content for this important community. I will now like to talk about some of our brands and as Debra mentioned, we have plentiful. We have a very large portfolio of Scotch fabulous brands. And today, we don't have time to talk about all of them, but I will want to highlight to Johnnie Walker and the Singleton. And let me start with Johnnie Walker first. I think you've heard already some statistics, but I'm going to just repeat a couple as a bit of context. It's the world #1 international spirit. And that is, again, identified by IWSR 2022 as of the first of June. In fiscal '22, we surpassed the net sales value of GBP 2 billion with this brand. We have, this brand, has 9% share of international whiskey. And I think interestingly or importantly, every month, 400 million consumers choose to drink Scotch. Of those 100 million consumers that choose to drink Scotch every month, 95 million choose Johnnie Walker and that speaks to the relevance of the brand and the penetration. I think I missed queuing for a video that I wanted to share with you. So before I go here, let me just tell you this and then we'll go to the video. There's 2 -- on Johnnie Walker, there are 2 main aspects that I would love to share. One is the relevance and importance of Keep Walking. I'm sure you're familiar with these 2 words. They were first connected to the brand at the end of 90s. And so as a platform, it's a very long-standing platform and for a brand to be connected to a standing platform for so long, it's actually very important. The platform, however, has evolved tremendously, and that's the video that I will show you in a minute. The fundamentals of what it means to be progressive, what it means to be special, what it means to leverage and connect with the idea of status, of what status actually mean for consumers today versus what it did when it was first created. That has changed, the expression of it has changed but what's on the heart of it has remained, and hence, that is its power. The second big pillar that I want to talk about is premiumization. Again, Debra has referenced the growth of Johnnie Walker Blue Label, the importance of the Johnnie Walker Black Label and above portfolio, and I will talk about that. But before we do that, let me just play a video on Keep Walking and its history. Let's go to video, please. [Presentation]

So I should say that as a CMO of the company, I'm really proud of some of those marketing accolades that you saw in the slides that we've won for multiple -- in different areas, both for creativity as well as for marketing effectiveness. So very proud of that. Speaking about premiumization, these are some of the numbers of the progress that has been made on Johnnie Walker over the last few years. And as you can see in that slide, today in a fiscal '22, 72% of the net sales value of the brand is actually Black Label and above. And that has been a progression actually created by the work that you have seen from fiscal '24 when it was only 65%. And that 72% of fiscal '22 is in the context of total Scotch category being 59%. Some of the aspects that really evolve, certainly, Johnnie Walker Blue Label and the whole story of premiumization, that I think are really important is the idea of how that represents or engages with luxury consumers. I mentioned that earlier. This image here comes from a global travel execution where we have been able to actually showcase in retail form how the brand engages with consumers in a way that is experiential and actually takes inspiration from many luxury brands. Now I want to turn us to another brand, The Singleton. And changing gears, Singleton is a single malt brand, and in fact, not just any single malt brand. Let me show you a couple of statistics here. It's the fastest-growing single malt globally. It's the #1 international brand in its lead market, Taiwan. Taiwan is actually one of the largest markets for single malts in the world and it was the market where the brand was first launched. And today, so even though it was launched first in Taiwan and expanded more broadly in Asia, today, it's the #1 driver of malts value growth in Europe. So the brand is actually expanding more geographically. So I wanted to show you a couple of examples of how this brand, which is fast growing, is also creating more innovation. And I have 2 different examples of how a single malt is creating innovation to expand its footprint more widely in 2 aspects. Aspect #1 has to do with having the brand be accessible and desirable by a wider group of consumers. And indeed, this is an entry single malt, meaning its flavor is very accessible to people, and that makes some innovation like these very possible and very natural for the brand. It's called Golden Tresor. It's finished in ex-sauternes wine casks, and for that reason, the liquid is slightly sweeter. And you can see how the proposed serve is in those kind of wine glasses served with ice. So it's a delicious liquid. It's a brand that speaks a lot about the flavors in its liquid. And again, this is a widening the footprint innovation. The other one -- and I should not here, we have a video. I'm going to show you 2 things. One is the video for Golden Tresor that has the advertising that consumers in Taiwan have actually seen. Another one is a video of a different innovation for Singleton, a Singleton 40-year old, at a very different price point, much higher. Let me show you those 2 videos in sequence, please. [Presentation]

And this is the -- that was Singleton Golden Tresor. this is 40-year-old, very different price point. As I said, these sells in the thousands of pounds actually. And it's an example of how a brand like the Singleton is expanding footprint, being attractive to more consumers, including more female consumers, as well as premiumizing and able to participate at that very high end of what we call luxury and rare whiskeys. That said, that Singleton, very quickly, but just 2 examples of -- within our portfolio. Of course, there's more and Alvaro is going to talk about the left-hand side of our slide. Briefly, Buchanan's and Old Parr, 2 fabulous blended whiskeys -- Scotch whiskeys, which are very important in Latin America. And on the other side, I've got a couple of pictures on another single malt brands like Lagavulin and Talisker. These 2 brands from the islands, one is from Skye. The other one is from Islay. If you ever have a chance, I encourage you to visit these distilleries, they're beautiful and the liquid is fantastic. A little bit harder, if you are not trained in single malts, there are a lot more PT. So for a different kind of taste profile and would perhaps a bit more of an acquired taste. Thinking about moving ahead and what lies ahead, I wanted to share with you 3 aspects of how we are shaping the future of Scotch. One is experiences, and we are in the perfect place to talk about experiences in Johnnie Walker Princes Street. The next one is innovation, although I have referred to innovation already and I'll make a couple more comments around that. And third and importantly, sustainability and how that -- it really matters when it comes to consumers and how we are engaging in this topic already. So on experiences, as Debra mentioned as well, we have invested recently in whiskey tourism in Scotland. And these are -- this is actually the location of some of the visitor centers that we have created on the distilleries for the most part, with the exception of Johnnie Walker Princes Street. The rest are distilleries and their visitor centers. They're a fabulous place where people can actually see where is the provenance, how the whiskey is made. In the case of Singleton, you will understand distills are larger so that the liquid can have a longer conversation with the copper and that, in turn, provides a fresher taste profile. I mentioned the islands, they're beautiful. A little bit harder to get to, but certainly gives you the sense of the actual connectivity with why is that liquid tasting that way. And the people at the distillery will be able to engage with you and explain what lies behind that particular taste profile. Speaking about Princes Street and very quickly, you're going to have the full experience so I won't dwell too much on it. But just to say we opened the doors in 2021 and it's been a phenomenal success, both in terms of visitors. We have welcomed 500,000 visitors already. They have engaged with us in the journey of flavor that you will go through, so I won't reveal any secrets. And importantly, through this experience, we're opening the doors to, again, more people. We're receiving people who are not Scotch drinkers and having them enjoy the drinks, and they'll go on to say that they are intending to repeat that purchase. And also a wider public, a very balanced gender mix in terms of our visitors, more so than it is currently the penetration in males and females. So it really does expand that footprint. Wanted to share this example. Some of version of these, you will actually experience but you may be aware that in 2021, we also acquired Vivanda. Vivanda is the company that was behind a product called FlavorPrint. We had worked with this company and FlavorPrint through a program that we had called What's Your Whiskey. And effectively, it's an algorithm and has a proprietary database of taste and flavors, and the proprietary algorithm can also connect the choices on those tastes and flavors that each one of us will agree to into a recommendation of what whiskey is the one that you will likely enjoy more. We use it in Princes Street to direct the journey throughout the experience and you will have, depending on your answers to the questions, you will experience different liquids throughout your journey. We are now in the process of bringing this product into some of the other consumer touch points including some of our D2C sites. So we're excited about that and the future that it brings to us. On innovation. Innovation, there's so much to talk about. You will see some of these products on display there but I wanted to show you 2 examples on different aspects or different parts of the trademark on Johnnie Walker. Blonde is a liquid that is very accessible. Flavor-wise, it's really conceived for the new generation and is appealing to more female consumers. Alvaro will talk more about that because we launched it more importantly in Latin America. And this is an example of Blue Label and how do we innovate on Blue Label? We have various forms, but one is every year we create what we call a City Edition collection. This year, we partnered with an artist. His name is Luke Holse. You may him up. He's a visual artist. He does a lot of work for opera production, theater production, via visual, via digital, and he created this design and experiences. So when you engage with these product, you will also be able to engage with what is his vision for the cities of the next 200 years. It's a futuristic view, very entertaining and very beautiful. And my last point is sustainability. And I just wanted to bring to life the fact that we have indeed very ambitious goals for 2030 in our Spirit of Progress, but we are acting on it already, generally speaking, and in particular, through Scotch. We have been focusing a lot on packaging because packaging creates -- is an important part of our carbon footprint indeed. And we have a number of initiatives around packaging. The first one has to do with making sure that our glass is better, meaning more recycled content and lighter. Today, in Black Label -- our Johnnie Walker Black Label bottle already contains 42% recycled content. Our goal is to take that to 60%, but we are already in 42%. So we have already made a lot of progress to date. Lightweighting bottles means the bottle, the actual glass will weight less and White Horse was the first of lightweighted bottle that we have actually sent to Latin America. We are also reducing and removing excess packaging. We have removed 183 million cardboard boxes from our Scotch portfolio and we are intending to look at what else to remove from excess packaging. And we will also transition to new materials, moving from glass to other materials. Sometimes existing materials like aluminum, where that's appropriate. And also looking to innovate in materials that currently are not being used for Scotch brands. So there's a lot of work in this area. Some of the examples that have already seen the light of day and they're really intended to engage in a conversation with consumers and bring this subject to life in a way that is compelling is this project, it's called Air Ink. You have some of the bottles on display there. You can have a look at it. They're beautiful ceramic bottles and they have been worked in collaboration with artists, artists that are based in different cities in the world. The black ink that you see is actually ink that has been extracted from the atmosphere and the artist then will create an image of the city with that particular ink. It's a small edition. We have created 2,500 bottles per city. They were sold at 3x the price of Black Label and they sold out very fast the minute we put them out in the market. And my last example and actually my last slide, is another perspective of a different thing. I mentioned earlier, recycled content. I told you that we aim to achieve 60% recycled glass in our bottles, and that Johnnie Walker Black Label is at 42%. We had a project with Talisker and Parlay, which is a company that works with environmental causes and we created this product that has made this beautiful bottle. It's made of 100% recycled glass. So it's just a proof point for us that premium single malts and premium products can actually be made of 100% recycled content, and it places a north star of what is possible. It's an inspiration for further innovation. So with that, I will just hand over to my colleague, Alvaro Cardenas. Thank you very much. I hope you will agree with me that the category is exciting, the brands are exciting, and the future is ours to shape. Thank you.

Well, hi, everybody. So it's a real pleasure to be here with all of you today. Especially talking about Scotch, which I have to acknowledge, it's a passion point for me. The idea during the next few minutes is for you to have a view around how execution looks like in a market and in this case, in Latin American markets. And during the presentation, you will also will virtually meet the great talent that we have in the market. So we have our -- some of our people telling, bringing to life through examples how we are executing our strategy and our ambition. I do hope that through the examples, you will see how cool and vibrant the Scotch category is. How we are recruiting consumers, younger consumers and diverse consumers, and actually bringing consumers out of international spirits directly into Scotch. You will see how premium Scotch is and this still premiumizing. And also, you will see that there is still headroom for growth. So without further ado, let's -- do you have the -- let's -- a quick intro what is Latin America. So we are a young and vibrant, yes, volatile region. You always have fun in Latin America. With more than 300 million LPA consumers, legal purchasing age consumers. And just as a reference, U.S. is 160 million, so we have a large consumer base, 50% of our consumers are under 30 years old. And again, as a reference, 50% of consumers in Europe are over 45 years old. We have an energizing and thriving middle-class segment that moved from 22% to 38% during the last 15 years, and it still is expanding. At last, we represent almost 1/3 of total Diageo Scotch, yes? So we are relevant for Diageo. And we have an unparalleled portfolio because we have the perfect blend between global giants like Johnnie Walker and local jewels like Buchanan's and Old Parr, but I have to say that feels like Latin American brands to the world. So let's start our immersion about our vibrant Scotch category in Latin America. And for that, let me introduce Paula Rey. Paula is our Managing Director in Colombia. She has been in Diageo for 23 years and her first role was Brand Manager of Johnnie Walker, so she has seen how the category has evolved during the last 2 decades. So let's hear from Paula. [Presentation]

So let's just start with a deep dive, a quick snapshot about Scotch category in Latin America. So as a category, it has outperformed TBA. And I think this is quite an important point. It's not just TBA. It's international spirits, locally-produced spirits and beer, so especially during the last 3 years. It's premium and it's above average compared -- versus other region as a category. That has been a big evolution during the last 3 years because that was not the case 3 years ago. So the category has really evolved into a more premium category. And in the context of TBA, it's still tiny. It is still a category that represents 4% and that's why we believe there is still so much headroom for growth as a category in Latin America. If we move now to Diageo. So we are -- basically, we are the leaders in a Scotch in every single market across the region. When you think about the classification about what are the #1, #2 and #3 mark brand. The #1 is Johnnie Walker, the #2 is Buchanan's and the #3 is Old Parr so across Scotch in Latin America. So we have 70% of market share in Scotch. And in Blended Scotch, which is 95% of total Scotch, we have 73% of market share. And in Premium Plus and above, we have 74% of market share. So we have a really strong competitive position in across the region. There is clear water between us and the next competitor. Relative market share versus the next competitor is 3.6%. And you can see in different markets that is -- in markets like Mexico, it's 5% and NCCI is 4.5%. So again, that's just continue reinforcing how solid is our position in the markets that we operate. So now, what has been at the core of this transformation, it's our relentless focus behind 2 jobs. Job #1 is about recruitment, and job #2 is about premiumization. And I will spend a bit more time in the recruitment aspects of what our brands are doing. So there has been a big reframe, especially in Latin America and this brand, that recruitment is not just because pricing accessibility. Actually, what we have been doing during the last 3 years is bringing consumers directly, new consumers directly into Premium and Premium Plus Scotch brands. This is an example of Brazil. In Brazil, for Johnnie Walker Black Label, for Old Parr, 52% of the growth of Johnnie Walker Black Label in Brazil are drinkers new to the whiskey category. And in the case of Old Parr, it's 66%. So this is just continue validating the fact that we are bringing consumers directly from out of International Spirits directly into Premium Plus categories. And why is that possible? It's because, as Paula said in the video, we are really address -- very clear about what are the consumer needs, what is the consumer attention and we are addressing those consumer needs and attention. And we are very clear about what consumer occasions do we want to disrupt. So whiskey in Latin America is directly associated with status and aspiration. So consumer wants to show they're successful, they want to show that they know how to appreciate quality and they want complexity and intensity in flavors, so all of that basically is a Scotch. And that's why scotch is, at the moment, is thriving in Latin America. Moving into one of the most exciting things for me at least, which has been the big change especially that I have seen in the category, is that -- is that is recruiting a wider range of consumers right now. So 25% of past 4 weeks, consumer drinkers are women and 65% of past 4 weeks drinkers are under 34 years old. So young and diverse. So now, we have been decoding what happened in order to what are the success factors and how can we replicate this and continue consistently executing the strategy? So there have been 3 success factors. One is around staying top of mining culture, building brands in culture. And I'm going to elaborate a bit more on that later in the presentation. The second one is around if you want to be a TBA player, brilliant execution at scale in the on and in the off-premise is paramount. So that being the second pillar. And the third one is about purposeful innovation, with the consumer at the center, with the intent of recruit and premiumize. So let's talk about the success factor #1, which is staying top of mind through culture. So I'm going to invite -- virtually invite Patty Borges, which is our Marketing Director in Brazil, to bring to life how we are using digital to really insert brands in live consumer conversations that is driving different level of talkability and really a different impact from a consumer perspective. So let's hear from Patty. [Presentation]

So I hope that this -- what this video and what Patty brought to life is around digital transformation is not about implementing tools. It's about delighting consumers and making sure that we know the conversation that is happening, and we insert our brands into that conversation to make our brands relevant and to being part of the culture of the society. So when we -- in Brazil, historically, Johnnie Walker Black has lacked, Jack Daniel's seemed talkability. And due to this type of interventions, now, Johnnie Walker Black is leading in talkability in the marketplace. So it shows and that has been in a very short period of time. So it really shows the power of digital as a service of the consumer. So the other important point on -- what is it? Building brands and culture is about experiences, and how we are creating unique and bespoke experiences for our consumers. There are 2 examples here that are in Colombia. One is Johnnie Walker Blue and the other one is Singleton. So let's start with Johnnie Walker Blue. This -- during November and December of this last calendar year, the team implemented in a hotspot in a city in Colombia, a unique interactive experience of Johnnie Walker Blue for the consumer to engage different with the brand, to co-create with the intent to generate real amplification and impacting consumers. So with that initiative, we reached 16 million consumers in 2 months and Johnnie Walker Blue market share increased in 21%. So that just shows the scale of, really, this type of experiences where they connect directly with the consumer. And the other example is with Singleton in which, again, this is a brand that we are seeing a massive potential due to what we have seen in single malt in a market like Colombia. So once again, a real experience to influence the influencer, to bring the right people, where there was a party in one of the most important social events of 1,500 people and the amplification of that event was around 10 million consumers. So I think this unique experiences is not that much what's happening at the moment. It's about the amplification and thereafter, which we are taking really advantage of. And now focusing on the success factor #3, which is innovation. And innovation, I'm bringing 2 examples. One is Johnnie Walker Blonde, which is the fun and modern, latest innovation in Johnnie Walker that we launched in Brazil, Mexico and Chile. So let's see the video and then I will share with you some of the early results that we are seeing from a consumer perspective. [Presentation]

So we launched, as I said, in Brazil, in Mexico and in Chile a bit longer than a year ago -- than 1 year, sorry. And these are the early results and outcomes that we are seeing. More than half of Blonde consumers are new into Scotch, disproportionally more women; 56% of consumers in Brazil are women and 69% in Chile. Recurring new consumers -- new consumers, 53% under 34 years old. So the intent was disrupt and recruit, and what we are seeing in -- as a result and it's still early stages, but it's really encouraging, supporting what was the reason why we launched the brand. The other example is Buchanan's Two Souls, which is a blended Scotch finished in Don Julio and tequila barrels. We launched this originally in Mexico and now, we have Mexico, Colombia, Central America and Caribbean. And again, very, very encouraging results in the short term. Similar, 50% of consumers are women, 40% are new to Scotch, more than 70% to try it, repeat it, and is recruiting from tequila, beer and vodka. So I hope these 2 examples of innovation really brings to life the role that we are seeing innovation play in the portfolio, especially -- and in play for the categories for the Scotch category as well. So now that I just shared with you what's the framework of the learnings and the success factors behind this transformation, let me get into our simple, but mighty flywheel, growth flywheel in Scotch. And let me start with the most important thing, fueling and investing behind our brands. And you know just about investing is about the right wave of investing behind the brands. So 2/3 of our AMP are behind the Scotch and are behind these 3 brands that I mentioned, Johnnie Walker Black, Old Parr and Buchanan's. And 50% of that investment is behind brand building consumer-facing initiatives, which was not the case 3 or 4 years ago. We were about 35% or 40%. 57% is good progress, but I think we can -- we need to continue progressing that even further, but it's a real progress. As a consequence of that investment, we are seeing really a brand strength and brand equity results. So in whiskey in Brazil, we have the #1 brand from a brand strength perspective, which is Johnnie Walker. In Mexico, we have the #1 and #2, Buchanan's and Johnnie Walker. And in Colombia, Old Parr, Buchanan's and Johnnie Walker, so the #1, #2 and #3. So that investment is driving the right equity in our brand, which is fundamental in order to continue supporting our pricing agenda in the marketplace, in the different markets that we are operating. And that -- so invest in the brand, our brand equity to have a balanced growth, top line equation. We want to drive volume because we want to recruit. We want to drive mix because we want to premiumize, and we want to drive pricing because we want to continue expanding our gross margin, which takes me to the gross margin part, which is around today, our Scotch portfolio is accretive to lack and is accretive to the edge. And it's very important to continue focusing on the gross margin conversation because at the end, it's what creates capacity for us to keep investing behind the brand. So this is a virtual cycle that we have been consistently executing during the last 3 years and we do believe that is going to be a fundamental part and how we will continue unlocking growth in the Scotch in Latin America. So this takes me to the last slide that I have, which again is just a summary of what we have and I think you heard Debra, you heard Cristina and during my presentation as well, we are obsessed with recruiting consumers, yes? We want to continue premiumizing. We want Scotch to be -- to feel cool and vibrant. And for that, if you want to be a TBA player, you need to really understand that execution needs to be one of the most important enablers of your strategy. So that was what I just wanted to share with all of you. And with that, I will hand them back to Debra.

I think we're at the point of Q&A. Perfect.

Andrea Pistacchi from Bank of America. Question on Scotch. Scotch has historically been quite cyclical in emerging markets and in Latin America around about 10 years ago, maybe a little bit less. You were focusing also on some primary Scotch brands, Black and White, White Horse, et cetera. You haven't mentioned them today, so I was wondering how you're managing cyclicality today in Latin America in Scotch? And sort of connected also to the cyclicality aspect, another point has been historically, distributors destocking or stocking up depending on the cycle. I know you're more focused on the sell-out culture, but just sort of update on what the stock level is across your main markets in Scotch?

Okay. So I'll take the second one. But why don't you go ahead, Alvaro and start with the first one.

With the first one. Okay. So primary and standard will continue to play a role as part of our portfolio in Latin America. The reason why we are focusing, especially today, the conversation around more in Premium and Premium Plus is because it's when we are seeing the fundamental transformation, but that doesn't mean that we are not having a role for the rest of our portfolio and I think that's the magic that we have. And in Latin America from a Scotch portfolio perspective, but actually in Diageo overall. We are being more selective in how we are playing with the rest of the portfolio in a way that everything that we are doing needs to be accretive. I think one of the biggest, most transformational changes that we have been driving in the Scotch and in our portfolio is this foundation about gross margin, which at the end, is what is allowing us to continue investing in the part of the portfolio that we want to exponentially grow, yes? So -- but to your point -- to your question, it's cyclical. And it's not because -- it's not like we are deprioritizing. We are being more selective in how we are playing with the rest of the portfolio.

Yes. I mean your second question just about retailer stock. We are seeing coming off this, remembering that as Diageo, we're 36% bigger than what we were pre-COVID. And in markets like, Alvaro, I think you're something like 70% or something, I don't know. It's a big number. And so yes. As we come off the super cycle, we are seeing normalization across multiple markets. The U.S., of course, being the most prominent and probably really what you want to know about. And look, I mean, we've talked a little bit about this, part of normalization. So it really is about the consumer and that's where we're really trying to focus. And we are seeing the consumer really normalize. And actually, if you look at the industry overall, we're feeling pretty good about how it's normalizing. It really is getting back toward more -- towards mid-single digits. If you look at the latest Nielsen results, latest Nielsen had the industry at almost 5%. It was plus 4.8%, I think. So we are starting to see the industry really come back to that mid-single digits. It's being driven by, importantly, this Super Premium Plus sort of part of the category. So Luxury is -- the growth is moderating there, although still growing. Below Premium, there is a lot of price competition and that's really where you're seeing this sort of weaker consumer environment, but remember, most of our portfolio really is about the Super Premium Plus area, so that's what we're seeing very close to. We feel very good about that kind of normalizing back towards what we would expect. Part of normalization, though isn't just about the consumer. It really is about the supply chain as well and that is some of the things you're mentioning. We've talked a lot about last year, if you remember, we finished the year. Shipments were ahead of depletions and a lot of that was restocking from out-of-stocks driven by glass shortages and that type of thing. So we had restocked last year and got into a pretty good position, and hence, the reason shipments were higher than depletions. Clearly, that's going to normalize. We've talked less about retailer, but certainly, others have talked a little bit about -- you're seeing in Nielsen, some retailers, the consumption is higher than what depletions that they're seeing. We're seeing some of that as well, not across all retailers, but certainly some chains. You see consumption, outstripping. And so look, there's a couple of things we believe going on there. Very much last year, if you remember, big inflation environment, a lot of people taking price increases. Potentially retailers bought in against that and so therefore, this is -- they're lapping also a big buying from last year. It also could be the interest rate environment. We're certainly staying close to it and we're watching that, but that is part of this normalization process that we're seeing. And like I said, U.S. is probably the most pronounced, but certainly, Latin America is seeing some of that as well. So hopefully, that gets sort of your question.

And if I may, just to complement something. And I think you're right. One of the things that in the past was problematic, was around the level of concentration in few customers. So for example, in the case of Mexico, it was a lot of concentration in just a few wholesalers. So one of the things that we have been working during the last 3 years is also eliminate that concentration by really expanding our route to consumer into different commercial partners and more allies to avoid that level of concentration that at the end, don't give flexibility to react. And I think that was...

And this is the sell-out culture that he's referencing. We're really, I think compared to some of the boom-bust things in the past, staying really close to sell-out in this environment, really critical. I don't know, Lavanya, if you wanted to add anything to that?

No. I'd just say that a lot of what you explained, Debra, is the story of what's happening in North America, right? But across all geographies, the thing that we are extremely cognizant of and we ended last year and we ended the half at very reasonable inventory levels. And that is something that we are very proud of. It's part of our culture to be really driven by sell-out and not focused on sell-in, and so that is something that we watch very carefully. It is part of our operating rhythm to review it and we make sure that we will continue with where we have been at the end of last year and at the end of the half to keep inventory levels at normal levels.

Sanjeet from Credit Suisse. One for Alvaro and a follow-up for Debra on the U.S. Alvaro, can you just talk a bit about how the channel mix has evolved in your Scotch business over the last few years and through the pandemic? Revolved over the category that was very much on-premise skewed? Have you seen much higher off-premise step-up since the pandemic? And how sticky has that been? That's my first question. And then just a follow-up on the U.S. please, Debra. I think you alluded to Nielsen stabilizing around mid-single digit. Is that your kind of sense of where you think the whole category across all channels is today? And how do you think Diageo is performing relative to that?

Okay. So yes, what are the things that we saw the short term after the pandemic was, as many other industries, was a real explosion of digital channels, on direct-to-consumer or B2B channels. But now, we are seeing a more normalized situation in which what's happening is that the on-trade in Latin America is really -- is booming, I would say and it's seeming higher than pre-COVID at this moment in time. And I think that the other evolution that we are seeing is third spaces, all what is experiences and events. It's disproportionately growing versus -- not even versus pre-COVID actually is gaining so much momentum that has taken by surprise all of us due to the level of activity that we are seeing right there. So I think that's the channel that I'm seeing more great and more disruption in a good way, because if you can create -- you can build brands in that channel, create the right level of experiences and really engage consumers differently.

If I may just add a little on that. This point around post-COVID and the times and the consumers' reaction to -- they have expressed in multiple forms and we have checked with various sentiment studies, et cetera. So more qualitative, so more quantitative, but the desire to be close to friends and family and celebrate with people has increased. And I think it has to do with the experience, the dramatic experience that everyone has suffered during the pandemic. And in that context, therefore, we have seen, despite the volatility and despite the concerns around the economic circumstances around the world, there has been a growth in the on-trade. And in fact, if you were to measure on-trade at off-trade, on-trade 2022 versus prior year grew. And I'm sure we have all experienced certainly when you think about more of low end consumers at the higher end on the on-trade, the degree to which that on-trade is prebooked is unprecedented, and we see that truly throughout the world. And hence, our reflections on premiumization and how this idea of premium experiences, the choice of treats and something that makes me feel special, it's an aspect of consumer sentiment that we are observing and fundamentally, through '22 and '23 broadly.

Yes. And so just continuing on that theme. So on-premise is one of the areas that -- and while not tracked as much, clearly, Nielsen doesn't have it, but you can certainly see it in NABCA and then if you look at things like SipSource, et cetera. On-premise is actually doing quite well in the U.S. and is already at that mid-single digits. Where we expect it to be is really, over time, we're going to get back to that mid-single digit. I was giving you a Nielsen number of 1-month. So 1-month does not make the trend for the year, but we do see it returning back to mid-single digits over time. And it's because of -- the fundamentals haven't changed. As far as number of drinkers, when you think about that, when you think about some of the premiumization trends, when you think about the pricing, the kind of historic levels of pricing that has gone in, it does feel like the fundamentals are really there to get back. That being said, I know there's a lot of noise because all of the supply chain stuff does sort of play into what ultimately happens with depletions and shipments, et cetera, but fundamentally, the consumer, which is where we really try to focus on, you guys have seen this as you're looking at Scotch. These are long-term commitments and investments that you need to make. If you think about our portfolio and when we talk about Super Premium Plus Scotch, this is Scotch that has been aged, so more of our portfolio is aged and has been aging for 10 years plus. So it is really important that we stay focused on where this is going to be over time and that's really where we do see that returning to this sort of mid-single-digit level.

It's Laurence Whyatt here at Barclays. Perhaps a question for you, Cristina, although you may have a view. Generally speaking, we expect the marketing to add to sales, but of course, there are some topics that are fairly incendiary amongst some of your customers. And I guess, you as individuals or Diageo as a company may have a view on what progress looks like in society. But of course, we can see that some customers have a very different view on that progress. How do you navigate this more polarized customer environment when it comes to marketing?

Can you say more about the question? Can you explain more the question, please? What do you mean?

There are certain topics in society where there are very different views, particularly amongst political on different grounds, and so...

I see where you're going.

There are types of marketing or topics that you could include in your marketing that may upset or put off customers.

Yes. Yes. Look, I think -- I'm sure my colleagues have a point of view but the reality for me, and when you think about the marketing of our brands, we've been really guided throughout times and I've worked long in the company, by the idea of what is our business really concentrated on? What are we here for? And that idea of this -- our business is the business of celebration really has helped us guide what are the topics that are relevant and what are the topics that are out of scope for us. And in that context, our marketing, I think, is well served. To guide us even further, we have, of course, our Diageo -- in marketing, certainly, our Diageo marketing code, which has been, again, is long-standing, has been working in principles for years, and we continue to review it. And I think as society changes, as sensitivities change, we look into that and incorporate what of that is relevant to us and what of that is not relevant to us. And I think we look to operate within that framework successfully.

Robert? Or did anybody have anything to add? Okay, Robert.

Robert Ottenstein, Evercore ISI. A much longer-term question and more strategic. Today most brands, everybody wants more consumers and they want them to spend more, and premiumization is one way to do that. What we've seen over the last 2 days, which is different than many companies is you have a tremendous asset base that's kind of unique and irreplaceable. So the question is, to what extent does -- do you try to look to drive long-term returns on that asset base? And is that driven purely on the marketing side? Is it driven -- or is it driven by the asset base? And how does -- how do you look to optimize that asset base? So one particular possible example is right now, 90% of the liquid we learned goes into blends rather than just singles. One possible strategy would be to maybe shift that and I'm just throwing that out there as an example. So the question is long term, how do you best manage the asset base in Scotch to drive shareholder value?

Yes. Do you want to take that, Lavanya and then I'll..

Robert. Look, absolutely and one of the key tenets of Diageo is that we do invest in the long-term growth opportunity. I'll just step back and say that -- and you've heard me say this many, many times, we are only a 4.6% share of total beverage alcohol. And so when you look at our asset base here in Scotland and you look at the miles and miles of warehouses of our precious liquid that's aging in the hills of Scotland, it is to support that, what we see as our opportunity to grow the category in a very sustainable and a profitable manner. Obviously, we take decision making around our capital allocation very seriously and the #1 part of our capital allocation strategy is, hence, investing within the business. And so it is in CapEx, it is in -- and it is in maturing liquid, and that maturing liquid investments support the long-term growth of our business. We measure our return on invested capital. We reported to you, we track it, and we make sure that it is increasing on an ongoing basis because that is a part of what makes -- and what helps us to be able to drive that return on invested capital up is being measured in our investment, but more importantly, it is driving that profitable growth. So as we heard today as Alvaro and Cristina described how we are able to recruit more consumers into our category and into our very, very precious brands, that is how we really drive that return on invested capital up, so.

Yes. I'll just add. To your point, there are a lot of decisions that we have to make now about whether you leave stuff in the barrel, do you take it out of the barrel? Do you -- how are you going to sell it? And I think one of the questions earlier about Latin America shifting from less standard Scotch to more premium Scotch, that's a decision to be made because that is potentially sales in this year versus what goes into sales in another year. And I think, quite honestly, we do see an opportunity in malts. That's one of the reasons why we're not just here talking about Johnnie Walker, but we talked about Singleton and some of the growth that we're getting like not just in sort of developed markets, but you think about the Singleton and what we've been able to do in Asia, which is typically in a place where we -- Diageo hasn't. Even our low 4.6% share, we've got even lower shares in those markets. So we do see a lot of opportunity in it, and it is why we are investing in stock for the future. We've increased our CapEx and we are laying down more stock because we do see those opportunities.

Just about, do you think single -- 10 years from now, 5 years from now, will single malt be a bigger part of the mix or smaller of the same?

I think if you look at what the IWSR, this stuff is so hot off the press. I think it was predicting actually malts -- trying to remember if it broke it out or not. But look, all of the -- Scotch across the board looked really strong. And definitely, you do see that in certain parts of the world, in particular, blended still has so much opportunity and you guys are going to learn about this today, but just how special blend it is and what you need to do. And people are still -- blended has a lot of momentum. But certainly, there are markets where malts play a big role and we look at that as well, so.

I think we -- in terms of our decision on how to use that liquids because at the end of the day, the liquid that comes out of a distillery is the liquid. It then comes down to the people who run the business to figure out how much of it to put into which brand and it's mainly driven by where consumer demand is. And so as we see, the liquid exists. So if demand moves from blended to single malts, we have the liquid to meet the demand because it's the same liquid at the core of it. And so we'll be driven by where we see consumer demand moving to and so what we do is really make sure that we are -- we stay really close to the consumer and understanding where the consumer demand is and have the supply chain capability and the innovation capability to move very, very quickly and very agile manner to meet that consumer demand.

It's Mitch Collett from Deutsche Bank. I'd like to ask one on Scotch, if I may, and then back to the U.S. if that's okay. So on Scotch, I think you gave the aspiration of 6% value growth. Could you maybe split that into what would be a realistic combination of volume, price and mix? And you probably won't want to give a margin for Scotch, but would I be right to assume that its margin is above the group average, so that growth is potentially margin accretive? And then the second question on the U.S. The market, I think, is trending close to mid-single digit in the Nielsen data, but Diageo's own value growth is currently negative on a 4-week and 12-week basis. I think NABCA looks a bit stronger, more like low single digits. So can you maybe comment on, I guess, why your growth in the U.S. is below the market average as the tailwind from tequila seems to be fading and as more of the market growth seems to be coming from ready-to-drink cocktails? And then if that's the case and you do have this overhang from shipments being ahead of depletions, particularly in the second half of last fiscal year, I guess, how should that make us think about the potential growth rate for the second half of this fiscal year and maybe into the first half of next fiscal year?

There was a lot there. I'll let Lavanya start and then we'll unpick that further.

Yes. So I'll just say that the 6% number that you're quoting is the IWSR forecast growth rate for Scotch and so it will be a combination of both volume, price and mix. Typically, the category grows volume 1% to 2% in North America and then the rest is price and mix. So that's typically how the category growth has split in the past and should be the same for Scotch as well. What you talked about, I'll take the last part of the question that you asked, which is about how should we be thinking about this half's forecast? I will answer that very clearly to you. I'm not going to give you an answer as to what our forecast is for this half. But I will -- but we did, we did -- we were very explicit last and when we reported results at the end of fiscal '22 to say that shipments had been ahead of depletions by 3 points and that was not because we ended at higher inventory levels than we would have historically had. But it is because we were refilling a pipeline that had been exhausted through COVID when we had tremendous growth rates and supply chain difficulties. So at the -- the 3 points is a story of last year refilling the pipeline back to historic inventory levels. And of course, we will be lapping that this year.

Yes. And then look, on performance in the U.S. and market share. We held market share in the first half. Clearly, we would love to grow market share. That is the goal. That being said, in this environment, several things are going on. We have taken price increases and we've taken price increases on tequila. We've been leading the industry on those price increases and I think those price increases are the right things to do. Tequila is still growing really strongly, so I think some of this -- there's a bit of a law of large numbers going on in sort of growth rates and where we're getting from a share standpoint but we feel great about our tequila business. As category leaders, we think the right thing to do was to take that pricing. It's an important part of making sure that, that part of the industry stays healthy and we are ultra -- we're Super Premium Plus priced pretty much, mostly in that Ultra Premium price point. And that is a place that the consumer is doing well and both of those brands are doing well. I mentioned at the luxury, Don Julio 1942 clearly there. This is the $100-plus bottles. This is where we are seeing growth kind of moderate. It is still growing, but growth has definitely moderated from kind of the super cycle of COVID where you were seeing, just high double-digit growth rates. That's not going to continue. A lot of that consumption is going out quite aspirational and so you're seeing that come down to a more normalized level but we feel great about our tequila portfolio. Look, RTDs are growing strongly. We do have an RTD portfolio. We launched that several years ago. There are so many RTDs launching right now. We've been in the RTD business in the U.S. for 21 years with Smirnoff Ice. That's, of course, a malted RTD versus spirits, but you kind of see the same patterns playing out. There's always a lot of entrants. They kind of come, they go out. These are kind of right now, that's very concentrated in a lower priced kind of vodka soda type of thing. We're not going to chase that - we're not going to chase that share. That wouldn't, once again, be the right thing for us to do. So look, we are in a situation right now where we're more in a holding share position but we also have a lot of opportunity. We'd love to get more out of our whiskey portfolio. We think we can do more there. We've got a lot of innovation plans. So more to come on that, but it's -- but yes, we're in a hold share situation right now.

When you say hold share, you mean as a percentage of TBA? Is that correct?

Yes. We always measure versus TBA because, of course, we have a very -- we have a great Guinness business in the U.S. as well. I mentioned things like our malted beverages, so we do play in a broader TBA environment so we always measure TBA.

Simon Hales from Citi. Look, I can't attend the Scotch presentation but asking the question, I think, for the last 20 years around India as a starting point. Clearly, it's always been the big hope for the Scotch category. We can debate whether maybe we're close to perhaps getting the trade deal now? Interested in your general thoughts on that, but perhaps more importantly, what you're doing to perhaps prepare on the ground for it's finally perhaps coming to pass? So that's the first question. And maybe within that, I think there's also a tendency on our side of the fence to overestimate how quickly those benefits may come through as and when tariff changes come through? And then the second question, just coming back again to the U.S., not to labor the point, but I'm just trying to make sure I'm clear on what the takeaway message here is. And it is the takeaway message that actually, depletion's taking a little bit longer to normalize back to mid-single digits than perhaps you thought back in February. And I appreciate that you're not going to give any guidance for H2 into 2024 but is that the start of maybe the shipment patterns or what you're seeing at the retailer end is also a bit more complex than you thought? Or is that too bearish of an assessment and actually have things as you expected it to be?

I'll take the India question. Look, we're -- India is a market where we're feeling really good about it. From a consumer perspective, this is an extremely optimistic consumer. The middle-class growth and what we're seeing on the ground over there with even the evolution of how retail is evolving in India has been really positive. Our business in India in the first half of this year grew 11%. That was total India but then within that, the Premium and above grew 18% and Scotch grew 27%. Now that's lapping 60% growth of Scotch in the prior fiscal -- in fiscal '22, so this is a business, which is really in growth mode. And to the Indian consumer, you don't need to educate them on whiskey. That's the category and you don't need to educate consumers in India about Johnnie Walker. Johnnie Walker in India is absolutely iconic and the equity of it is -- it surpasses none, right? And so we do feel very confident about the prospects. On the free trade zone -- the free trade agreement, we're very hopeful that this will come through, more hopeful than we've been in the past. I'm looking at Dan sitting at the back over there and so yes. And if it does, we do expect that as duties come down, we will flow that through to the consumer. Now having said that, it's a 150% duty rate right now. It's not going to go down to 0% at one go. And it constitutes about 15% of the price that consumers pay for a bottle of anything that's imported. And so again, we do need to also recognize that if 150% comes down to 100% that will be a 5% price reduction that will flow through. What we have seen equally important to the import duties is also state duties, which tend to be quite high in India. And that, in a number of the bigger states, that has come down in the last 18 months. And we have seen the consumption pick up as those duties have come down and they've translated into lower pricing for the consumer. I will pass it to you, Debra, in the U.S.

Yes. I think as you kind of asked the question. Certainly, we are seeing sort of this -- as we put out while we're not talking about what we're going to -- what we're going to see, just reminding you of what we reported last year and that difference between sort of shipments and depletions. That is what we're lapping and that is part of the normalization process that clearly needs to come back. And yes, there are things going on between kind of what you're seeing in consumption, particularly in some chain accounts and what we're seeing in depletions in those accounts. So I think you characterized that well in your question.

Jean-Olivier Nicolai, Goldman Sachs. Just 3 questions. First, if we go back to the maturing inventories for Scotch. So by how much have been increasing your level of maturing inventories over the last, let's say, 3 or 5 years? And what should we assume going forward is 3% to 4% volumes reasonable? Just on duty free as well, can you comment perhaps on the role of duty free for the Scotch category? How big is this channel for the group and for Scotch today for ? And how does it compare to before COVID? And then lastly, if I may, just looking at the pictures of the pretty bottles behind you. What's the opportunity for direct-to-consumer for Scotch?

So Lavanya, do you want to take the first one on Scotch maturing inventories?

Yes. So we have not -- and we will not be putting out the exact value of maturing inventory split between Scotch, other International Whiskey that we also have within our maturing stock inventory as well as tequila, and we have rum in there as well. But on our balance sheet, you will see our maturing stock inventory for the total group and it has increased quite substantially over the last 7 years. And we will continue to -- when I think about capital allocation, investing in -- within our business is our #1 part of capital allocation and within that, investment into maturing stock is definitely going to be a key priority.

And then your second one on duty free and just China. For us, look, China is still small, albeit we've got the SJF investment in Baijiu. So we are the -- I think only -- I always look because I think we're still the only Western company that's got the majority interest in a Baijiu company. And actually, look, Baijiu was really impacted, of course, by COVID. That's 90% of total beverage alcohol in China and it was very much affected. And there -- if you would have seen from SJF's, they're public and they did a report out, there is quite a bit of inventory in that as China is sort of reopening. That being said, that -- all of that return has yet to happen, so that is still out there for the recovery. That's all about banqueting, big events, so that really is just now sort of coming into play. So that part of the business, we also have an import part of the business. That is much different consumption from Baijiu, much more concentrated in a couple of provinces and that is coming back. I was actually in China a few weeks ago and it was great to see sort of people kind of coming out but once again, this recovery is sort of just happening now. So look, for us, it's all really potential. We're -- it's a smaller part of our business, but we do see real potential in it. We've made investments. We've got an innovation center that we've opened up in Shanghai, which is really terrific. Actually, one of the Singletons that Cristina presented today, that's actually coming out from that innovation center. We've got also our whiskey investment where we are -- we invested in a whiskey distillery in China, so we do see a lot of opportunity in the future yet for China. Travel, I think they -- I'm reading a lot of what you guys are reading. Clearly, international travel, the Chinese tourist kind of international travel is also yet to come. We have not seen that come back, but there is duty-free travel in general. If you're buying plane tickets, many of you, I think, had to fly here, would have seen travel is -- and definitely, duty-free is a big opportunity for us. And we're really seeing once again opportunity in the premium end of that duty free and that's really where we're focused on.

On that, maybe -- I had a picture of some of the work that we've done particularly on Blue Label. And we have more and more explored the concept of having global travel be in the big airports, a feature for how our brands engage with consumers effectively and really exploring how that experience explains, taking real inspiration from the luxury brands like Louis Vuitton or Balenciaga, et cetera. And some of those retail and experiential actions that we have made in the post-COVID world, I think, respond to that idea. And we see it's an interesting, really interesting area for us.

And then I think your final question was about just direct-to-consumer Scotch. So I don't know, Cristina, do you want to talk a bit about.

Yes. So Alvaro mentioned earlier that -- not specifically to direct-to-consumer and I'll speak more about that. But in general, the commerce part of the digital connectivity between brands and consumers has come down post-COVID, as consumers went out and engage our products and our brands in the analog world when it comes to commerce. Having said that though, I mentioned some of the -- one of the investments that we've made that we are now including not only in the physical D2C experiences like this one, but also in the digital D2C experiences, like thebar.com or malts.com, and we see that there is a greater value for us to play with an omni-channel concept. It doesn't necessarily mean commerce as it may not result in a large transaction value in the short term, however, it gives us data. And I mentioned FlavorPrint, we are learning about flavor preferences in a very gender and age agnostic way, and there's real value in that. So for example, with that product that I shared, we are getting real insights into which flavor preferences consumers are choosing in various geographies as they engage with these D2C platforms that we have around the world. So Alvaro talked about thebar.com in Brazil, we have more. And this is an area that I think will develop even further.

Chris Pitcher from Redburn. A couple of questions. One on Latin America. Alvaro, your business has been incredibly strong and is printing record margins. It feels a little bit that marketing has not kept up with that sales growth. Are you being tasked to give margin growth and top line growth? Or with all the opportunities in terms of broadening the consumer and the channels, should we expect you to start to reinvest that simple message? Should we expect marketing spend to go up, margins go down? And then on China, the Scotch strategy in China is sort of divided between your business and the joint venture. Is that really working? Because Johnnie Walker Black doesn't seem to have had the attention for the last 5 years or so that some of the other brands in your Scotch portfolio are getting. It seems to have picked up again, but -- how does that work between the Diageo single malts and Blue, and the other 2? Is there a logic to put them back together again?

Do you want to take the Latin America?

Yes. So -- what we have done in Latin America in order to -- actually to drive to stabilize more the margin equation of our financial context, has been more around -- it's been around revenue loss management including pricing. It has been around having the right portfolio mix and really taking the benefits of the scale. So one of the things that learning from the past and especially in emerging markets is you cannot get too excited with growth. And it's denote to adding a lot of overheads and resources, et cetera. So how we have been supporting the growth, it's been in a very lean and flexible way. So -- and that's why we have been able to expand our gross margin, operating margin and increase our marketing reinvestment rate. So we will continue driving that equation in the future. Emerging markets, they are not -- as you well aware, they are not a linear kind of growth equation but we have been working on the fundamentals of the business that give us all the confidence in the medium and long term that continue supporting that flywheel, where we will continue expanding our TBA participation in the market but not at the cost of reducing marketing, because that is what is really driving the consumer engagement that we are seeing.

And I'll just add on your China question. I think we do feel good about the structure that we've put in place in China. It's allowed us to get more senior resources overseeing parts of these businesses. And it's also allowed us to like things like moving the innovation center there, I think has really allowed us to really take a look at China insights. So sort of China for China, not coming out of sort of an Asian center of which it's looking across a lot of markets. We really are quite focused on China for China. So more to come on that. I think Johnnie Walker Black. Clearly Johnnie Walker Black, this is one place where I think even the local team would tell you they see opportunities in the future for Johnnie Walker Black and feel like there's more to do on that brand. Whereas things like Singleton, the Singleton has really taken off there. So some of that is just consumer preferences and getting the right campaigns and getting the right energy behind it, but it's not been sort of a preference for one or another. It's just, I think, the Singleton and some of our single malt work has really taken off. And we know we just have more work to do on Johnnie Walker Black, but there's great things in store for that. But we do feel great about how we've got that structured right now.

I'm going to have another that you not to forecast your eyes. So on the first half results said that you expected the U.S. to grow mid-single digit in the second half, and Diageo do at least as well as that. I'm paraphrasing, but it was something like that. That obviously doesn't account for trade loading comps, but would you stand by that comment now? And the second point is on the minimizing the use of glass. Just looking at the slide behind you, clearly, glass plays quite an important role in premiumization. What's your philosophy when the -- I guess, the environmental imperative comes up against the branding imperative?

So I think we'll take the glass one first so we can think about how we're going to not answer your first one. So Cristina, do you want to talk a little bit about glass? Because we've done a lot of work on glass and environmental sustainability.

Yes. So look, we've done a lot of work in understanding packaging in Scotch and in other categories, frankly, and the role that the bottle actually placed in communicating with consumers effectively. And you're right. Traditionally, bigger and more, I suppose, heavier content bottles would be equated with greater quality. And so when you look at the actual weight of our bottles, it's just incremental like that. So we've done a lot of work through our categories to define and I mentioned earlier what are the pathways that we have chosen. Lightweighting bottles is a real one. And so we have a path to actually lightweight the bottles in general with the specific front lines per kind of price point but also I think importantly, we have an innovation team. And within that innovation team, we've created what we call a breakthrough innovation team that is looking at both luxury and sustainability, and I think interestingly, at the juxtaposition of these 2 ideas. So I cannot reveal anything to you today other than we think that given how consumers are feeling about sustainability in general. We have understood what percent of consumers are now willing to pay more for products and brands that have sustainability at the heart. And I can't explain and talk about that fluently. We see that percent, even though it's not enormously large right now, is shifting and we expect that we will continue. And for that reason, that's what led us to create these groups that I just referenced. We do think that there are some very, very interesting ways to actually put forward products that combine both. So it's actually lightweighting containers, packaging, but at the same time, provide luxury cues. There's some beautiful work that I suppose we will be able to share with you some time.

But we do have a lot of partnerships as well. I mean aside from lightweighting, there -- because there's a lot you can do technology-wise and so we're constantly -- you would have seen some of the things we just announced the Encirc partnership that's going to be around getting a hydrogen furnace here in the U.K. that is -- I think it's going to be 200,000. I'm looking over, there's people over here that really know. It's something like 200,000 bottles that are going to be able to come off of this hydrogen furnace. And that's in combination with actually some other companies as well as this company called Encirc. So some of these things through partnerships and other things, there's a lot of people trying to figure out this glass and how to really get decarbonized glass. So we're certainly looking at that, and we've got a lot of innovation streams. And what's exciting about it, these are projects that just about decarbonizing but also, in many cases, are saving us money and help us do things with consumers as well. So I don't want you to think about it just as things that are going to necessarily cost us more. We actually are finding some very interesting pathways through that are good for us in multiple parts of the business and help mitigate risk.

So I'll take the second part -- the first part of your question. I think when we were -- when we reported results, and Ivan was talking about it, I think with the part that we really want to focus on is what's happening with the consumer because at the core, that's what we have. That's what's going to really drive value to our business and as well as to our investor base. And if you look at what's happening with the consumer in the U.S., we are seeing that we do anticipate that consumer and Debra talked about it, we're already starting to see it in Nielsen where category growth, consumption growth is coming back to that mid-single-digit growth framework, right? Which historically was where the category was growing. And we anticipated that this would come back to that 4% to 6% mid-single-digit growth from a category perspective, right, when we put out our medium-term guidance back in November 2021. And so that -- this isn't something that's been surprising to us or that we didn't anticipate, and we are seeing that come back to that rate. And that's where I think we really need to be focused. As Debra mentioned, there's a lot of noise in the system from the prior years simply because we -- the growth rates so outstripped anything anybody had expected. Inventory levels through fiscal '21 through the entire chain, our inventories, our distributor inventories, retailer inventories, everything was incredibly depleted. You saw it in our results when we posted results at the end of fiscal '21. We were talking about shortages of bars, shortages of Crown Royal, shortages of Bulleit. I mean, pretty much everything was under -- there was some kind of a shortage in the supply chain and everything. That got recovered through fiscal '22, and again, it happened at different times for different brands. So there is a lot of lumpiness in the past, but what we really focus on is where is the consumer. And what we're seeing there is really -- I think it's really good from a category perspective. You're seeing consumers moving out of beer and wine into spirits. That is continuing to happen. You're seeing premiumizing continuing. Now the growth rates of all of it has slowed down versus the past few years, but it's still -- the category is definitely premiumizing. And so from a category health perspective, it's -- I think we're seeing what we anticipated to see.

This is Nadim Rizk from Pinestone Asset Management. Two questions related. I understand the Scotch category is obviously doing really well or the whiskey category. Within that, our perception is that again, single malt is kind of really sexy now and blend is not so sexy anymore for whatever reason. I think spirits go through these sort of long-term cycles where, as you said, tequila is now really sexy and really hot and some other stuff is not. And you're clearly sort of a blend Scotch company, so that's one. I love your comment there. The other question is within blend, when we look at what's actually really hot within -- sorry, within the single malt. We get things like Macallan, Glenfiddich, Glenmorangie, Balvenie, there's not a lot of the agile brands that are sort of showing as really strong. And that's maybe because you're really, at the core, a blend Scotch company. So I'd love your comments on both. And this is maybe just an American perspective or perception. That's maybe not the case globally.

Maybe before you jump in, Debra, just facts. Like past 4 years, our Scotch compound annual growth rate has been 9% in value. And from a volume perspective, it's been 4%. So this is our business irrespective of what's hot or not hot seems very hot to me.

And in North America, so just focusing on that. I mean, so within Scotch, Diageo was gaining share. We're up, over the last 3 years, almost 320 basis points within Scotch. And that growth is not just happening on Johnnie Walker. It's actually happening on Buchanan's. So yes, another blend, but also our single malts portfolio is also growing really behind. What's different is you don't see the Singleton as much in the U.S. That is a brand that heat and energy has really been generated over in Asia and has come into Europe. So you're not seeing as much of that in North America but you -- but like Lagavulin this year, if you're an Islay malt guy, then you would definitely be seen kind of heat behind that, as well as Talisker doing really well in Oban. To be quite honest, on things like Oban, we are quite short on liquid. And so there, in the U.S., you've got to -- if you want to go buy that, you need to get out and buy it when it comes out. So look, we certainly have more of a blended portfolio and part of this is Johnnie Walker, which we just see so much opportunity in. We do make decisions, we could do more malts and less blended. And I think if we saw less opportunity in blended, we might very well do that but I think we do still see a lot of opportunity in blended. We do see that that's hot. And we do see also the single malt opportunity, so I would argue that we see both. But certainly, Johnnie Walker has had some real excitement across the globe. Because the other thing I would remind is just the broad-based nature of it's not just Latin America, it's not India, it's not just the U.S., it is Europe. It is literally across all of our regions. If you looked at our first half results, Scotch was growing in every single one of those regions. And actually, the latest IWSR data really does show also that broad-based behind Scotch, which is why we have you here.

I'm going to say one more thing maybe just kind of to complement that idea. When do you engage with consumers around the world, consumers don't think that way. That's manufacturers language. Consumers think brands and so no one thinks of Johnnie Walker as a blend. Actually, we spend a lot of time here, you will see, explaining to people that it is a blend of the finest single malt in Scotland. So we have to explain the concept of blending. It's not obvious to people. They don't necessarily know the details of that and consumers are really keen in engaging with the brand. And so on Johnnie Walker, for example, as I said earlier, it's a GBP 2 billion NSB brand. It's very large. And certainly, if you think about -- we were talking about China earlier and Johnnie Walker Blue Label. Johnnie Walker Blue Label wins over single malt in many occasions for various reasons, but one of them is truly seen as a luxury icon. So the reason why people are attracted for -- by that brand is that it competes in that context. And certainly, as I mentioned earlier, the Singletons, Debra just said, it's an Asia focus and that's where it was first launched. It's now expanded. We see that growth now in Europe, it's exciting, and we see that there is more opportunity to that. You look at IWSR, you will see -- you mentioned a few single malt brand. Actually, Singleton is the number fourth of your list globally.

Even Kilchoman, which essentially -- and I don't know if I falling well, but didn't even exist or hardly existed 10 years ago and now is also a really hot brand. And so I wonder if it's a lot easier to break into a single month now that it's such a tough category and there's potentially more new entrants into the business.

There are a lot of brands certainly. Yes. But it's hard to be a new -- the only thing I would say is just be careful on a sort of new entry -- like it's hard to sort of enter into a scotch category where you're aged. Most of this is quite aged. So new entrants don't just really pop up.

No, that's exactly why I'm asking because the perception is scotch has barriers. It's really hard. You have to age it. And then you get a brand like this out of nowhere that's now kind of becoming big. It's like are we missing something?

I mean we have examples, one of the brands that I did not talk about today, but it's more like. And so the brand is long-standing, of course. But we relaunched it in 2018 and we have seen really very positive reception. We very purposefully wanted to position as a luxury brand. Again, a lot of focus on Asia because as we discussed, it's an important market for us, where we're looking for greater growth and it's been incredibly well received. So now we're thinking about how do we see this elsewhere.

We have markets fighting over more...

Yes.

And actually a diverse request, we will sample at tonight at dinner.

So last question from Celine, please.

Celine Pannuti, JPMorgan. So I have 2 questions. So one on whiskey and one on the U.S., so to round it up. On whiskey, you said that some of the data point is the expectation of a 6% growth for Scotch whiskey going forward. It seems from the investment that you were alluding to in terms of the inventories, but as well some of what we've seen in the capacity increase that we've seen in some of your distillery that you have -- you're looking for an acceleration. So am I right to believe in that to read that, you are looking at an acceleration in your scotch whiskey growth? And where will that acceleration come from? And the second one on the U.S., you were mentioning the consumer. We've seen 1 data -- 1 month data in instant being better. At the same time, other companies are warning on the U.S. consumer. People are more cautious about maybe higher price point even in spirits. So beyond just normalization, are you -- well, how are you anticipating maybe a weakening consumer environment more on a 6- to 12-month basis?

Yes. So I'll take the second one and then we can talk about the whiskey. Yes. So I think what you're hearing from some others and I mentioned this briefly, it depends upon where your portfolio is arrayed really against the spirit consumer right now. We are seeing that the bottles above $100, this luxury end, is definitely slowing down from where it had been growing in kind of the super cycle time frame. It is still growing, though. So I think while slowing down in growth, it is still growing. That is not true. If you get kind of mainstream and below, that is really where you're seeing a lot of price competition. That's where you're seeing actually some negative price mix. You're actually seeing positive volume but negative price mix. And so that's where, unless you break this down by price tier, I think it's very easy to take away different viewpoints. Also remembering that this base is lumpy. So that's why 1 month, you kind of see, hey, this is coming back. And then it's like, I'm not so sure. So I think there is just a lot of noise in that. But I think if you look at this across -- we tend to look at NABCA a little more than Nielsen just because it is more all-inclusive of all channels, I think that's where you see a little bit more of kind of this trend back toward because that picks up sort of things like on-premise, which have stayed pretty resilient through this. We've always said recession, we're not recession proof. So we're resilient, but we're not recession proof. And so when you think about the next 16 or whatever months that you -- clearly, recession aside sort of as we're talking about it but we are seeing a very resilient consumer that does purchase the brands. Remember this -- we're not purchased that frequently. It is a few bottles a year and you're purchasing these for celebrations, for gifts. And so it's still quite an affordable luxury, as you would say. And so because of that, there is a lot of resiliency in that and that's kind of what we're seeing, and it does bear out in the data that we're seeing right now. The 6% IWSR.

Yes. So we're definitely seeing that Scotch is hot, right and you saw it in the numbers today. And we definitely do believe there is an opportunity for Scotch to continue to recruit consumers. And especially when you look at it from a lens of emerging markets, Latin America, Asia, India, there's definitely opportunity for us to use Scotch as a way to recruit more consumers into spirits and then within the spirits framework to premiumize the category as well. So do we expect that it will grow ahead of total beverage alcohol growth? Yes, I do believe we expect that it will grow ahead of TBA as it recruits more consumers into the category.

I think we're out of time, unfortunately. So if I could request at all if you look at your name badges, anybody with a red dot will -- after Debra closes with her remarks, if you could step outside. And those with the blue dot, please remain but Debra, I'll turn it over to you.

Yes. So just in closing, I want to leave you with Diageo's competitive edge, which hopefully you've had a chance to see some of that today. It's our people and our culture. My colleagues, all 28,000 across the globe are driven by our purpose, our performance, ambition and our commitment to make the right decisions today to ensure that we deliver sustainable long-term growth. So thank you again for joining us.