Diageo plc (DGE) Earnings Call Transcript & Summary

Good morning, and thank you for joining our preliminary results call for fiscal '23. I'm Debra Crew, CEO of Diageo. Fiscal '23 is the first time I'm presenting results as the CEO of Diageo. I was appointed in early June, taking over from our much loved and respected former CEO, Sir Ivan Menezes. I hope you have had a chance to read our fiscal '23 results press release and watch our presentation on diageo.com. I'm pleased to share that we delivered a strong performance in fiscal '23, organic net sales growth of 6.5% and organic operating profit growth of 7%, both are within our medium-term guidance. We expanded organic operating margin by 15 basis points in a challenging cost environment while continuing to invest in the business. Our culture of everyday efficiency and strong pipeline of productivity initiatives drove GBP 450 million of savings in fiscal '23 and is fueling sustained investment in brand building and future growth. Our business is now 35% bigger on a constant net sales value basis compared to fiscal '19. Globally, we have gained or held share in 70% of total net sales values in our measured markets in fiscal '23. And I'm comfortable with overall inventory levels at the end of fiscal '23, both globally and in the U.S. market. Looking ahead to fiscal '24, I expect operating environment challenges to persist with continued cost pressure and ongoing geopolitical and macroeconomic uncertainty. We expect organic net sales growth and organic operating profit growth in fiscal '24 to improve from the second half of fiscal '23 and accelerate gradually through fiscal '24. Over the medium term, we expect to consistently grow organic net sales between 5% to 7% and deliver sustainable organic operating profit growth in the range of 6% to 9%. Thank you.

[Operator Instructions] And our first question today goes to Celine Pannuti of JPMorgan.

My first question would be on the outlook that you just spelled out. If I think about the top line, you talked about macro uncertainties. Can you talk about the U.S. market, more specifically what kind of underlying market growth you've seen so far? And what are you baking as you look into the next 12 months? And if it would be as well, if you could tell us about how volumes and price/mix have been shaping up in this market? And how you intend to gain share there? And then my second question is on the gross margin. You talked about cost pressure challenges. Can you talk about what kind of cost pressure you still expect to see in 2024? I saw that your gross margins were under pressure in '23. Can you talk about the potential for upside in '24, especially we heard that costs are also coming down. So if you could put all this together in order to understand the moving parts of gross margin in '24?

Thanks, Celine. I'll take the first one on the U.S. market, and then Lavanya, if you can take the second one on gross margins. Look, on the U.S. market, as we talked about in the presentation, the fiscal '23 results from NSV, it's really a story about the supply chain normalization. But the underlying consumer which I think is really kind of getting to your point, the underlying consumer, we're actually seeing a lot of resilience. If you step back and you look at the industry, from an industry perspective, we are seeing it return to kind of mid-single digits, which we had projected it would and we are seeing that it is. And we're pleased to see that, that is getting better over time. So from the fundamentals, we still feel very good. The spirits industry is still gaining from beer and wine, which we feel very good about as well. We're still premiumizing as an industry. What's driving this growth is really at the super premium plus price point. So that's really driving, frankly, almost all the growth. We do see at the luxury end, some moderation of growth there, but that's a very small part of our portfolio. We also see, if you look at mainstream and below, that's really where you're seeing a lot of the pressure. We are seeing consumers do kind of smart shopping. But fortunately for us, we've got a broad portfolio across a range of price point. So we're feeling like we can navigate that as we go forward. You asked about gaining share. I think what happened -- if you take a look at what happened to us this year, there's really 2 places where we have not performed the way we have wanted to. First, on RTD, which we talked about during the presentation. This is a segment -- it's the fastest-growing segment right now of spirits. And in this emerging area, the last couple of years, we were out early with it, and we performed quite well, and we're gaining share. This year, our innovation has not hit at the same rate. But we know what we need to do, and we feel like we've got the right pipeline going forward on that. I will also add, this is an area of spirits that's largely sourcing from people who are trading up from seltzers and from multi beverages. So we see that going forward really is an opportunity. The second area is on Crown. Crown isn't -- while we did gain share in Canadian Whiskey, we did not gain share of total beverage alcohol with Crown. And that's a big brand. It's important for us. Once again, this is a brand that was really impacted. One of the places we had the most shortages was on Crown. It's also the area where from a supply chain normalization, the results that you see on Crown from a net sales, actually our depletions and consumption is much better than what that shows on there. That being said, we still think we have opportunity with Crown. We're now able to innovate on the brand. So that will come through the year. We've also got some really strong marketing plans as well coming back. So those are really the 2 share hotspots. I will add, though, we have a lot of really great performance in share as well with tequila. We're feeling good also that we won a category share in scotch and an American whiskey Bulleit is having a great year. So we -- so overall, we feel like we've got to fill the tools in the portfolio to do it. We just need to get back on our innovation game in a couple of areas. Lavanya, do you want to take on the gross margin question?

Sure. Thanks, Debra. So Celine, on gross -- on cost pressures that we're seeing in fiscal '23, we saw inflation pick up from like the high single digits all the way to the low double digits. And the single biggest exposure we have from a cost perspective is energy cost. And that impacts us through the entire supply chain, all the way from cereal pricing that's impacted by the cost of fertilizers going up through to glass and logistics, our own distillation costs also have a high exposure to energy. So that's what we've seen happen. Now as we go into fiscal '24, what we're seeing on inflation is it is moderating not necessarily coming down, but moderating. I'll come back and talk in a minute about agave specifically, but we have multiple levers to help offset inflation. We have -- premiumization is a good driver of margin because premium products tend to be -- the more premium products tend to have higher margins. Revenue growth management -- it's another area that we use to help offset inflation with both in terms of headline pricing, but also trade spend optimization, managing mix. Productivity, I'm really proud of the work we've done from a productivity perspective this year, where productivity picked up from historic average of about GBP 400 million a year to about GBP 450 million a year. And so -- and as well as volume growth. I mean, spirits volumes were flat this year. But if you kind of exclude the impact of the lapping of the repipelining in the U.S. spirits volume would have been up 1%. So all of this helps us to offset inflation. Coming back to your question very specifically about agave, we are seeing agave prices moderate again. We are -- there's two things that I would say about this. One is, more than half of our tequila is aged liquids. So there's a phenomenon here where the benefits of agave prices coming down will be a little more delayed on our portfolio because of that aging. And then the other thing I'd say is that we have a mixed model to how we procure agave. I mean we produce some of it ourselves. We grow some of it ourselves. So it's owned. We contract with the farmers to grow on our behalf, and then we buy some on the spot market. So all of these do play into what we expect to see with agave prices. But if you look at planting data that the Mexican government puts out, we do expect supply to increase over the next few years. And so with that, prices should be coming down.

And the next question go to Trevor Stirling of Bernstein.

Big question, Debra and Lavanya, is concerning guidance, but great that you reiterated medium-term guidance. But I'm trying to put a sense of where fiscal year '24 would fit into that. So if fiscal year '23 ended on 3% in the second half, if the first half of fiscal '24 should be a little bit better because you don't have the swaging fund and destocking and the comps in the U.S. a little bit easier. So that might be edging towards 4%. And the second half of fiscal '24, you lapped that swaging fund comp. So that should be better second half, but you say should be better than the first that has me somewhere around the low end of the medium-term guidance. So I appreciate you're not going to give a number today, but is that the right way direction to think about things?

Lavanya, you want to address this?

Yes. Sure. So Trevor, I mean, I got -- I'll start by kind of reiterating what you just tended on, which is that we are not giving in-year guidance. And maybe stepping back a minute, the reason we don't give in-year guidance is because we run the business for the medium to long term. And we -- there's still quite a lot of volatility out there in the marketplace. And we're going to do what's right for the business. And we're going to continue to invest in the business. We see substantial resilience in the consumer and the category as Debra laid out. And we are very confident about our medium-term guidance of 5% to 7% on the top line and operating profit growing slightly ahead at 6% to 9%. Now having said that, what we wanted to do was to be as helpful as possible for the short term in-year guidance. And so just wanted to point out the fact that this year has continued to be a lumpy year. Fiscal '23 has continued to be a lumpy year as the last 2 years have been. And so just from a lapping perspective, the comps are easier on the second half of the year than for fiscal '24 than they will be in the first half of the year. So I'll leave it at that, and we are focused on making sure that we drive the business in the right way that we gain share of total beverage alcohol across markets that we drive the productivity that we need to be driving to continue to reinvest in A&P behind our brand.

And if I could ask just one follow-up. The one region where it seems to have the biggest swing in growth rates between H1 and H2 was LatAm from sort of roughly 20% growth in the first half to a small decline in the second half. Maybe if you could just comment a little bit on what drove that big deceleration in Latin America?

Yes. I'll go ahead and take that, and then Lavanya, if you want to add anything to it. Certainly, we were impacted by timing. If you think about the live events that were going to happen in -- quite early in the second half, things like Carnival in Brazil, et cetera, we did have certainly some shipment timing that landed in half 1 or half 2 that certainly did impact. And we do continue to see a more sensitive environment for consumer pricing in Latin America. But I do think look, we -- overall, we still feel very good about our performance in Latin America. Remember, this is a business that is 70% bigger than what it was prior to going into COVID. So we slipped along even considering this year with some shipment timing things happening, it's still a 15% CAGR. So pretty incredible and also really nice margin growth as well. I think the margins have doubled, I'm looking at Lavanya and she is nodding. The margins have doubled in Latin America during that time. So we still feel good about the overall health there. And we are still seeing premiumization from the consumer in Latin America, albeit it certainly is an environment where consumers are kind of more sensitive to price.

The next question goes to Edward Mundy of Jefferies.

I've got a couple of questions on tequila, please. The first is on -- in the U.S. But the first is on Don Julio and Casamigos, which saw a bit of a moderation in the second half. It looks like Casamigos sales were sort of flattish and Don Julio down to the sort of low single digit after the quite strong first half. Are you able to sort of provide a bit more color as to sort of why that happened? It's the first question. And the second is you've got some great tools to read the consumer, you put radar on the you've got great social listening tools. Are you seeing any evidence of down-trading from sort of the premium and towards the more mainstream level? It's the second question. And the third question is about the international opportunity for tequila. I think you mentioned it like it drove 10% of European growth, Which market are you really seeing it within Europe and which of the other markets outside of Europe and the U.S. where you're starting to see some early signs of tequila adoption?

Yes, I'll take that, Ed. So I think, look, starting with Don Julio and Casamigos in the U.S., I mean, remember, this is a bit of a love of large numbers in many ways because, certainly, we're still seeing very strong growth on both brands. And look, super premium tequila has always been growing as well. So what you really see within tequila is you see super premium tequila and you see kind of what we would call ultra-premium tequila. So take it from a kind of a $40 range up to $100 range, that is all growing very fast, and that is really what's driving the growth. At the lower end, kind of the more tequila, that is not growing as fast, and that has been pretty price -- much more price sensitive and promotion sensitive. And then as the luxury end I mentioned this earlier, the luxury end, we are seeing moderating growth there. That's not surprising to us. We always have known that a lot of that is aspirational consumption. So still growing, but just not at the same rate. So we're still feeling very good about Don Julio and Casamigos. I think when you look at sort of the second half versus the first half, I do think there's quite a bit of noise in that data. We've got a lot of on-premise, which is not in track, is really where a lot of the tequila growth is still growing quite strongly. So we feel really good. And of course, we do have some innovation for the first time ever coming on Casamigos. We know that, that's going to be exciting for consumers to see some new innovation. You mentioned demand radar. Yes, we are closely -- and we are using all of these tools. We're just not seeing things go from premium to mainstream. Like I said, you certainly are seeing some heat in kind of that super premium plus tequila as well as ultra, but we're not seeing kind of a premium to mainstream slide really anywhere. And then on international tequila, look, I mean, we see this across multiple kind of big cities, that high energy occasion. This is really where particularly 1942, we also are seeing from a global from a tourism standpoint, and a lot of these big tourist hotspots we're seeing great growth. So you think about like Southern Europe for us, Greece, so that's -- Italy, Spain. And then I don't know if you've had a Paloma yet, Ed. But if you had it, I think on the cocktail side, we're really seeing internationally, things like the Paloma cocktail really driving a lot of excitement for us.

And the next question goes to Sanjeet Aujla of Crédit Suisse.

Two from me, please. You very helpfully gave us a bit of context on your U.S. distributor levels. But can you just talk about the retailer inventory situations you see it? And against that backdrop, would you expect depletions and shipments for your U.S. spirits business to be more closely aligned in fiscal '24?

Yes, I'll take the first one and then Lavanya, if you want to talk about the depletions and ships. So on retailer wise, I mean, we certainly did see a difference in depletions in the second half versus what we were seeing in the tracked channels on Nielsen and NABCA. That being said, that -- a lot of that -- that's fairly noisy data as well because if you think about last year's environment, last year, there were a lot of price increases sort of coming in. And so for retailers, it would have been a very smart decision to sort of buy early. And once again, creating this lumpy data, we can talk about lumpy data. But it would have created that within the retailer inventory levels as well. So look, we took price increases last year. We took big ones in the spring, and we also took another one on August 1. So that might explain some lumps certainly within our data. But at this point, I wouldn't signal really anything else on what we're seeing on retailer kind of inventory levels other than that. Lavanya?

Yes. So Sanjeet, depletes and ships, look, as we laid out, we ended fiscal '23 with very healthy levels of distributor inventory back to pre-COVID levels, and we are -- we're very comfortable with where those inventory levels ended. If you go back and look at history, like even before COVID, there was always small variations between depletes and ships. I mean it's never a perfect time. We run the business from sell-out with the sell-out culture, really paying more attention to depletions. And I would expect minor ups and downs to continue to exist as they did in the past. Although I'd say that versus the last couple of years, I mean, things have normalized here going forward. So I think that's probably the best read we have today.

Great. And just one quick follow-up on -- just coming back to U.S. tequila. When we look at Nielsen and NABCA, it does seem like your share within the category has slowed a little bit. So can you just give us a little bit of context behind that and how you see that evolving over the next 12 months?

Yes. I think, look, we have led pricing within the tequila industry. And we are looking out for the long-term health of tequila. And so we're not going to chase any more share than what we kind of think is a sustainable share within that. But we do -- like I said, we feel overall very good about both brands and the health of both brands. We have always had higher shares on the aged variance of tequila. And those continue to perform very, very well with consumers a little less promotional driven versus Blanco.

The next question goes to Simon Hales of Citi.

So just a couple for me. Can I just sort of go back to the commentary on inventory levels? I mean Debra, you talked about you're comfortable globally with where inventory levels are sitting at the end of the year. I think it's in Latin America, you referenced in the statement, there was a little bit of inventory normalization in the second half of the year. That obviously explains some of that slowdown in organic sales growth the sort of Trevor referenced in his question. Is that destocking, if you like, in Latin America now complete? So that's my first question. Is there anything else in other regions outside the U.S., we should be aware of as we go into sort of H1?

Yes. So I think -- look, we do feel comfortable overall. We do have -- there are a couple of places. One of them you mentioned in -- within Latin America, Brazil still sitting higher than usual inventory. But outside of that, Latin America, I think, largely I'll just reiterate, overall, we feel good. Every once in a while, you'll get in a market a little bit of extra inventory and mostly because you returning to live events for COVID, we were expecting big things there. And while it materialize -- just didn't materialize to the level of which the team originally thought. But once again, we feel great about our Brazilian business. It's going really strong. And -- by the way, the other thing just to mention on Brazil, it is a long supply chain because it's mostly for us a scotch market. So it is the type of thing where you have to plan these things months in advance. But like I said, the team there is quite confident that this is inventory that they can move. It's great inventory. So I wouldn't say anything probably beyond that.

Okay. That's very helpful. And secondly, can I just come back to the U.S. market sort of more generally? I mean you referenced in your presentation the fact that you under-indexed as a business in RTD. Clearly, there's a lot of preprepared cocktail growth in the U.S. that you haven't got access to at the moment. When you look at the size of the addressable market for you in the U.S. at the moment, given that you underplay in the RTD area, what do you think the growth rate is really of the U.S. market on a go-forward basis?

Yes. I mean I'll start with saying, actually, we're a pretty decent player in RTDs. It's just the spirit-based RTD. So if you think back -- we've been in the Smirnoff Ice business for 20 years. So -- and actually, Smirnoff Ice continues to be a great and has nice growth rate continuously through that. There are times where it has been bigger and smaller, but we do know how to run that RTD business. We really don't play much in seltzers outside of -- we've got Lone River. But that's a very specific kind of agave kind of background seltzer. So that -- we do have a broad portfolio, and we do see that moving up into spirits. I think what we have said is that we want to play selectively. We want to play where it's premium, we want to play where it will grow the category, we want to play where it will ultimately help our brands because when you think about LDA plus kind of coming into TBA today for them to come in through an RTD spirit, that just leads them right into cocktails, which is right into where we want to play. We also have some very nice other convenience plays that we're very excited about. Things like our Bulleit ready to serve, which is a really high-quality old fashions in Manhattan. So these really high-quality serves, and we're feeling really great about that innovation. So we broadly think that convenience is important and we can play in it. We are just going to play in it at the premium end. The good news is the consumer is premiumizing. They are coming out from seltzers and from FMBs into RTD kind of spirits. And so people are developing this pace for better quality in this space, and that is right on the bull's eye for where we want to play. As far as, look, it is still a small part of overall TBA. I think even taking into account, I think beer kind of what's in the beer space, the beyond beer space, it is still a smaller player. So -- and we look at this, we're a total TBA player. We're not trying to carve up shares into too many different segments.

Understood. And if I could just squeeze in one quick final one. You delivered GBP 450 million of productivity savings in 2023. How do we think about the size of that savings opportunity in 2024? Clearly, you've got the final year of productivity program benefits and maybe some early benefits coming from the supply chain agility program, should be expected to see more than GBP 450 million of benefits this year?

Lavanya, you want to take it?

Thanks, Debra. So yes, no, we're, look, very proud of the work that the entire organization has done on driving productivity in fiscal '23, up from our historic levels of about GBP 400 million to GBP 450 million as you said. Going forward, look, I do expect that we will achieve and overachieve on the 1.2 billion of productivity that we guided to 2 years ago. So this is our third and last year of that program. But for us, productivity is very much something that we work on across the board. The supply agility program will be in addition to the GBP 1.2 billion of productivity that we had guided to. I'd expect to see some small benefit of that starting to flow through in fiscal '24. The vast majority of that is really going to come fiscal '25 and beyond. So I don't think that's going to be a very large contributor in '24 itself, but we will continue to work on manufacturing productivity. A lot of the work that we do on sustainability drives productivity like being more efficient in our usage of water and energy, the decarbonization work that we have done. Leven as an example, I think you guys saw when you were up there in Scotland that we now do have the ability to run that factory partially on solar power. And so all of that definitely helps contribute to productivity as well.

And the next question goes to Mitch Collett of Deutsche Bank.

I've got three questions, please. First, just to go back to the U.S. shipments, depletions, inventory question again. This year, your shipment growth lagged depletion by 2 percentage points. Last year, shipment growth exceeded depletions by 300 basis points or 3 percentage points. And in F '21, shipment growth exceeded depletion growth by 5 percentage points. I don't think you disclosed it in F '20. But can you confirm that the absolute level in U.S. dollars of shipments match depletions in F '23 and therefore, we should expect shipments and depletion growth to be broadly aligned in FY '24? Apologies for the long-winded first question. Second question is that you said that you gained or held share in 70% of your end markets. Can you split that into gained and held? And then thirdly, you show that you are broadly flat in terms of market share of TBA in the U.S.? I guess that means that you're losing share of spirits. Is holding share of TBA but losing share of spirits something you're comfortable with in the U.S.? And if not, what can you do to fix that, given that you've already significantly stepped up marketing investment within the market?

I think, Lavanya, if you want to take the first one on the ship, deplete.

Yes. So Mitch, I think the in Debra's presentation today, we added a slide in that we haven't historically had in our traditional results deck, but addressing this question of distributed inventory levels because there's been quite a bit of noise around this topic. And -- but what I point to over there is because at the end of the reconciliation between ships and depletes is distributor inventory levels. Distributor inventory levels started fiscal '23, broadly in line with historic levels and ended fiscal '23 at a very comfortable place very much in line with historic pre-COVID levels of inventory, okay? So what you had from a shift and depletions perspective, I mean if you go back to fiscal '20, you saw the big reduction in distributor inventory levels. We run this business very much with the sell-out perspective. If you go back to June 2020, height of COVID, no one knew when markets were going to reopen, what the shipments were, what the depletion rates were going to be. And so we were very, very responsible and pull down distributor inventory levels and as it turned out, the category performed quite well, and the consumers were extremely resilient in the off-trade and that last drink that was being had in the on-trade came home. Cocktails were being made on Zoom calls all over the country and way more exciting to make cocktails at home than baked cider bread. And so that further accelerated the reduction in days inventory from a distributor's perspective. Where we ended '23, we are very comfortable with inventory levels. I expect ships and depletes to move more in line with each other as they've historically done. There's always been fluctuations. I'll say that again, there will be minor fluctuations, but it's far more normalized than it has been over the last 3 years.

And then your question on the 70% of markets holding or gaining share, yes, I would -- the big one that's holding share is the U.S., which is why we kind of drew that out also on a slide in the presentation to really talk about. And look, within that being flat, absolutely, we did gain on beer, but we did lose on spirits. And I think I've talked about a couple of the areas, there are the hotspots that in prior years were helps us that this year were not. And this RTD which I've talked a little bit about our plans there. we do have plans, but we are going to play very selectively there and really play in the right places where it most complements our business versus playing at the low undifferentiated kind of heavily promoted area, that's not of interest to us. We always measure ourselves on quality market share And so that's really important. It's not -- we're not interested in sort of the short term sort of hits in that. So that's RTD is a big part. And then look, Crown, I mean, within whiskey, we're the biggest whiskey player in the U.S., our North American whiskey portfolio is bigger than rum and vodka combined. And so for Crown, it's really important for us to get that business back in a place where we can innovate again, this was a business that we were short. We were short on liquid, we couldn't do it. Historically, if you look at things like Crown Apple, Crown Peach, this has driven a lot of incremental consumers into Crown. This is not like the vodka flavors. These flavors on Crown have really brought in new consumers new geographies in the country. So missing out on that innovation has been a big deal for us. So to be able to get back to it, we're very excited about. And to your point, we have been spending on A&P. We're very thoughtful about how we spend that A&P. We always make sure that we look at every event that we do to make sure that we get a return for it. So within that, we feel like we do have the A&P to go do what we need to do and get back to a share-winning place in TBA sustainably.

If I could just come back to Lavanya on that Slide 13. I mean it doesn't have an access, you don't have a scale. Could you perhaps give the days of stock, days of sales inventory that it shows at the end of June and just confirm that that's based on a prediction of 12-month forward sales?

So I'm not going to give a number on the days of inventory that we have. We have visibility to it on a daily basis with our largest distributors. We run our business, as I said, on a sell-out culture, and we -- and it's pretty much a replenishment model into distributors where we -- it didn't happen for the last couple of years because we didn't have product. But otherwise, that's how we run the business. And we calculate days as a forward cover basis, and it is based on normalized category growth rate predictions. So we -- just to add a little bit more here, we treat our review of distributed inventories and stock in trade, in general, very seriously. We have what we call the Finance Assurance Committee. Debra and I lead that, we meet 3 times a year. And one of the things that we review through that process is stock in levels. I mean we have auditors present on that. We share this report with the Board of Directors and the Audit Committee. So this is something that we -- our sell-out culture is really something that we take incredibly seriously. And...

And we've been doing that for a decade, right?

Decade, yes. And so I know there's all sorts of other wholesale inventory level data out there, but that's why we wanted to provide confidence that we're running this business the right way.

And the next question goes to Andrea Pistacchi of Bank of America.

I have a couple, please. On Crown Royal, you said that you're now in a position to step up innovation. So along what axis are you thinking of innovation for Crown Royal? Is it flavors, is it limited additions or anything different? The second question is on pricing, mainly in the U.S. market. So for many years, there has been little pricing in the U.S. market, but in the last 18 months, there's clearly been a lot more because of the cost pressures. So looking forward, how do you think about -- for Diageo the balance between volume and maintaining or gaining the share of TBA versus pricing and margins in the U.S. market? And then lastly, if I may, on agave, going back to agave. Agave prices coming down is clearly very beneficial to margins medium term even if it -- you're saying it may be a little delayed for you because of the aging. How do you think about the possibility that more and cheaper agave availability could affect the pricing environment in tequila? Or is this maybe a risk if it is a risk more at lower price points?

I'll take the first one and then Lavanya, if you want to look at the pricing and agave prices. So look, on Crown Royal, everything we do on innovation, it is about recruiting incremental consumers. This comes back to -- this isn't sort of the something just to drive news. This is about really bringing in new consumers. And on Crown, I mean, part of what's enabled us, I should have mentioned, we've got a good CapEx environment -- like investment in Canada that we put in, in a carbon-neutral distillery that's going to enable us to have the liquid that we need to get the growth that we need. What we just didn't anticipate was the huge uptick that COVID brought with it. And of course, with any whiskey, you have to know years in advance. So we just simply brand short. That being said, like I said, it is about recruit. I'm not going to -- for competitive reasons, I'm not going to get too into what's coming, but I promise that you'll be able to taste it when we launch it. Lavanya?

Pricing, look, our objective on price is always to treat it as one of the multiple levers that we have. Price really plays on 2 fronts. One is it is definitely one of the levers that we have to offset inflation. But there, we also have premiumization, productivity, volume growth. These are also other levers that we have. And then the second is price is also a lever within the marketing mix. And it helps to drive equity of the brand in -- especially in the higher price points in the super premium kind of price points price. Sometimes it's an indicator of quality as well. Our objective on pricing is to make sure that it's very balanced. And our price in itself is not an objective for us. Building strong brands for the long-term future is the objective. And as we do that, price is one of the things that we look at. But equally, we want to be driving premiumization. We want to be driving volume growth. And if you look at volume in the year, while our volume for the fiscal was down about a point, all of that was really a reduction in volume in Africa beer. And macroeconomic conditions have been tough in Africa, high inflation as well as devaluation. We run that business in an extremely responsible manner. And so we took price, and we lost some volume there, spirits volume was flat. If you adjust for the lapping effect, spirits volume would have actually been up 1 percentage point. So we do feel good about the balance that we have between volume, price and mix. I do expect that as inflation moderate pricing will also moderate as we go forward over here. In terms of agave prices, look, as I said before, we do expect that they will come down here in the future as supply increases. Do I see that closing a price risk? Perhaps at the lower end of the price point, I mean the one thing you have to remember is, if you go to a big retailer outlet -- liquor outlet in the U.S., like what you find is a very, very long shelf of tequila products even today. And there's a lot of competitors on the shelf. They've been there for a really long period of time. It's not new. The competition has always been very much a part of the tequila shelf. And -- but the brands that have done well, like our brands, Don Julio and Casamigos, have done well because they have been outstanding from a marketing perspective and outstanding at brand building. And this is not a price-sensitive category in general. I mean, spirits in general is not price sensitive. It's usually -- the total spend for average U.S. household is still only about $360 a year. It's an infrequently shopped category. It's mostly consumed in special occasions. And what you're seeing drinking or what you're seeing serving people does say a lot about you. So I don't expect that this is -- the agave cost coming down is going to lead to some kind of a massive price sensitive environment here.

And the next question goes to Sarah Simon of Morgan Stanley.

I've got two questions. First one was on marketing. You've talked about more innovation coming on ready-to-drink and more supply coming on for Crown. How should we think about marketing as a percentage of revenues, I guess, globally, as we head into fiscal '24? And then the second one was just back to -- I apologize, back to the inventory question. You said it's based on the sort of ratio of inventory levels to what you expect in terms of daily revenues. Can you give us a sense for what kind of growth you're assuming in terms of daily revenues, in terms of year-on-year growth so we can just get a feel for what's behind that decline in the ratio?

So I'll take the first one. So on -- look, on marketing, we don't move to sort of a -- we're not wedded to a certain rate of return on marketing. We -- so we do what we need to do for the business. And if something is not working, we don't spend it. And so we're not -- but we're not managing to a specific number there. And so we do feel like we are -- we do have good levels, and we have been investing in places where we see opportunity. We measure all of that marketing. And where we see more opportunity, we spend it. Where we don't or where it's not working, we move that money. So that's kind of what I've got on that. Lavanya, you want to take the other question?

So Sarah, I'm not going to give, sorry, guidance for what our short-term growth rate assumptions are going to be for the U.S. or for any other market for that matter. But rest assured, what we use to calculate those days forward cover is very realistic growth rates based on recent historic actuals and trends. I mean like It's -- well, we measure buyers. We do all the good stuff that you would expect a company that runs a very disciplined business to do.

And the next question goes to Chris Pitcher of Redburn.

A couple of questions on Africa, please. You mentioned that volumes have been weak in Africa, but your performance in Nigeria certainly seems to held up better than many of your competitors. And judging on the commentary, it looks to have been led by beer. Can you give a bit more color on what's helped your performance in Nigeria, given all the macro pressures on the consumer? And then more broadly on your strategy in Africa, there's been a lot going on. You sold entire businesses, you sold breweries. You've increased others. Are you happy with your footprint as it is in Africa right now? And could you share any plans you might have across the continent to help protect share, given some potential new entrants, especially in important profit pools like Kenya?

Lavanya, if you want to take the first question, I'll take the second one.

Yes. So look, I'm very proud of the work that the team has done in Nigeria, grew 11%. We took price -- we are not the biggest player in beer in Nigeria. But we were -- but Guinness is an extremely differentiated brand, and we did take price there and managed to hold the business. The spirits business is doing well in Nigeria as well. Gin up 6% in Nigeria. And overall, we are quite pleased with our performance over there. Africa footprint is the second part of the question?

Yes, I'll take that one. I mean, I think -- look, we are seeing a kind of political and government instability in multiple markets. I am quite proud of the team and how they performed because to your point, I think, ultimately, at the end of the day, they delivered a good set of results and very difficult circumstances in several markets. What we are still seeing is sort of Guinness is doing better than a lot of local beer. We are seeing international spirits do better than a lot of local spirits. So that's still a good sign for our business and that we're still getting -- along with pricing, we are getting a good mix as well into the region. And I mean, look, we're -- you mentioned sort of Cameroon. I mean we try to run Guinness with a very asset-light mentality. So if there is a place where we see that somebody else can do it more efficiently on those assets, we look at that to make sure. So we are always looking to optimize the business where it makes sense. But we feel very good about what we were able to do in Africa this year overall, considering the circumstances.

And the next question goes to Laurence Whyatt of Barclays.

A couple of geographies for me that we haven't touched on yet. Europe was one of your double-digit growth markets in the year. And I think it was the only market that accelerated in the second half. A number of markets did double-digit growth. I was wondering, do you see any of this growth as sustainable? Or is there anything in particular that was driving this level of growth this year that you don't see repeating next year? And then secondly, India has now actually quite sustainably driven mid-teens, high-teens growth. I think it was 17% this year. Presumably as a result of disposing of a number of your lower-end brands and franchising out a number of the brands, you would expect the growth rate of India to have accelerated. Do you think the sort of mid-teens, high-teens growth is now sustainable?

Thanks, Laurence, and thanks for your question on our -- some of our best-performing markets here. So yes, look, Europe had a great year. Net sales up 11%. And I mean, we really are seeing pretty broad scale. GB is a little bit weaker on the spirit side, but on -- Guinness is growing double digits, super strong. But really across our Europe geography, aside from the industry, we're really gaining share. And so that's really some of the things that really helped us. We're seeing particular strength in scotch. We're seeing premiumization. We're seeing tourism bounce back in Southern Europe. Our non-op portfolio also continues to grow. We're still seeing on-trade. I think we're saying it's sort of like a 92% of pre-pandemic. So there's still maybe even a little opportunity there. So we're seeing Europe mostly as a -- this is a really solid performance, and it's not sort of a bunch of one-offs. So that's really great performance out of Europe. And to your point, it did accelerate in the second half. By the way, Johnnie Walker up 28% in the market. So just really, really impressive. Guinness up 20%. So very exciting. Look, on the India front, Lavanya, I was going to say -- oh, go ahead.

Yes, I can take that. Yes. So India, look, I think, Laurence, it's been 17% growth. The premium and above grew 20%. The super premium plus grew 32%. Johnnie Walker grew 34% in India with a volume growth of 13%. So we were able to take strong price in India, which is not something that we've been able to historically do on a very regular basis, but the team did an excellent job of being able to get that. And within Johnnie Walker, Johnnie Walker Black, which is the core of the portfolio in India, grew 54%. I mean this is a whiskey market, right? I mean, unlike a lot of other emerging markets, the Indian consumer does not need an introduction to whiskey, and they do not need an introduction to Johnnie Walker. I mean, it's a highly aspirational brand, and the consumer in India is very resilient. And our portfolio in that premium -- that super premium and above is unmatched in India. And so I feel very confident about our prospects in India.

And I do think -- I'll just add, from a consumer standpoint, this is a consumer that is quite confident. We're seeing, from a premiumization, our mid and upper prestige is growing. Scotch is growing faster than kind of the local Indian whiskey. So -- and we want share. So this is another one where the sustainability of this growth looks really good.

And our final question today goes to Jeff Stent of BNP Paribas.

Just a quick question, Debra. It's early days as CEO. You've got a CMD scheduled for November. But I wondered if you could share some high-level thoughts on -- are there any subtle piece as to or you maybe want to sort of shift direction of the agile? Is there anything you're thinking about accelerating or decelerating? Just any sort of high-level color you could give us would be very helpful?

Yes, thanks. Look, I'm seeing this more as an evolution than a revolution at this point. I've been at the company now, if you include my non-exec time, about 4 years. So certainly, a lot of the strategy already has my fingerprints on it. That being said, we did highlight a couple of things in the presentation. We are looking at taking tequila around the world. We've done that with so many brands going back all the way to Johnnie Walker. As the largest tequila company in value already with really being present in only a couple of markets, that just feels like a big opportunity. Talking about also just continuing this juggernaut, we have with Johnnie Walker. I mean, Johnnie Walker just keeps walking. And so I'm very excited about what we've got there. About 1/3 of Johnnie Walker consumers are female. So we have this brand that is able to really recruit in new users, it's over 200 years old. So it's really exciting. And then I also talked about Guinness. I mean Guinness is another one where you think about -- it's Ireland and it's St. Patrick's Day and its pubs, but we are seeing a lot of strength on Guinness across the board. Guinness grew in every region. And we had big markets that had double-digit growth. We are the #1 in on-trade in Ireland. We're buying quite competitively in NGP. There are weeks that we are the #1 in on-trade. And we've got a lot of innovation to include going into non-alc 0.0% is off to an incredible start. We've invested in capacity. So I really see an opportunity to continue the growth on these 3 categories alone or half the business, and they're growing strongly. So we feel great about that. And so thank you. I do look forward to seeing you at our Capital Markets Day. I'm really excited to talk more with you.

That's all the questions we have time for today. I'll now hand back to Debra for any closing comments.

Thank you for joining us today and for your interest in Diageo. I hope everyone has a lovely summer break.