Diageo PLC (DEO) 2011 Q2 法說會逐字稿

Good morning and welcome to this interim results webcast. Deirdre and I are going to follow our usual format and speak for about 40 minutes on the key highlights of these results. Then we'll be joined by our executive colleagues to take your questions. Today we're also joined by Nick Blazquez and Randy Millian as this is the first time we've reported our results across five regions.

As you saw from our announcement this morning, our first-half performance has been strong and it's a balanced performance across regions and categories. In an environment of uneven global economic growth and of varying consumer trends we have seen our performance improve in developed markets and continue to strengthen in the faster growth markets of the world.

Stronger volume growth and improved price mix has accelerated our top line performance. Our volume performance improved in the developed markets, but it was the performance of our scotch, vodka and beer brands in the emerging markets where volume was up 10%, which was the main driver of our overall growth. Together with the acquisition of Mey Icki and Serengeti Breweries, this increased our emerging markets business to almost 40% of the total.

In markets where the economic trends are stronger we have taken price, which together with almost a 20% volume growth of our super premium brands, drove a 4 percentage point price mix gain. This price mix together with the cost savings we've delivered expanded operating margin in a period in which we have significantly increased marketing spend behind our brands.

Our first-half performance of 9% organic operating profit growth and double-digit EPS growth underpins the confidence we have in our brands, in our routes to market and our people. And we are signaling this with a 7% increase in the interim dividend.

However, this is an uncertain world and the economic and political prospects in some markets in which we operate are challenging. We are cautious as to the trends we will face in the second half but we believe this first-half performance gives us the platform from which to deliver our medium-term goals.

I'm going to stop there for now and hand over to Deirdre who will look at our financial performance in more detail. Deirdre?

Thank you Paul. Good morning everybody. At our November conference I spoke about efficient growth. By that I mean investing to drive the top line while generating margin improvement. This first-half performance demonstrates that the investments we have made and continue to make in our brands and in our sales capabilities are delivering efficient growth. Our marketing spend was up again, 10% in this half, and as a percentage of net sales it was up 40 basis points. The bulk of this increased investment, over 70%, was targeted at emerging markets where we see the greatest opportunities for growth.

Net sales grew 7% in the half reflecting a continuation of the underlying trends we saw in the first quarter. It was driven by solid volume growth of 3% and 4 percentage points of positive price mix, split almost evenly between price and mix, reflecting the strength of our brands and our investments in them. This price mix, together with the efficiencies we've made in our supply footprint, drove gross margin expansion of 70 basis points. We've reduced overheads in developed markets and we're beginning to reach scale in many of our emerging markets, resulting in operating margin expansion of 60 basis points. Free cash flow was GBP500m in the half and we are maintaining our progressive dividend policy with a 7% increase in the interim dividend.

Now I'll take you through some of the detail underlying this performance and I'll start with the drivers of net sales growth. Growth of scotch in emerging markets, especially Johnnie Walker, Ciroc in North America and our beer brands in Africa continued to be the key drivers of volume growth, while Smirnoff's return to growth and the continued growth of Captain Morgan outside of North America provided additional volume upside.

Mix was driven by the strong performance of scotch, particularly the deluxe and super deluxe segments which accounted for 41% of net sales growth. This was due to continued emerging market growth and consumer confidence at higher income levels in the developed market. Double-digit growth of our premium vodka brands also drove positive mix. Price increases in the emerging markets were the biggest driver of the price element of net sales growth.

The completion of the acquisition of Mey Icki accounted for most of the non-organic net sales growth in the period. Scope changes also reflect the purchasing of our controlling stake in Serengeti Breweries and the sale of wine brands in North America in fiscal '11. Under recent accounting changes acquisition costs are taken to the income statement and we have reported operating profit from acquisitions net of GBP39m of acquisition costs.

Weakness in some of our African currencies and in the US dollar was partially offset by the strengthening of the euro giving a slightly negative overall FX impact on net sales.

The underlying performance was strong throughout the half although, as we described we reported first quarter results, one-off factors flattered our net sales growth in that quarter.

The phasing in North America was balanced, 5% in both quarters, although the first quarter benefited from better price mix. In Western Europe the first quarter was flattered by lapping the destock in Spain last year. In the second quarter we reduced promotional discounts, primarily in Great Britain, which led to lower volumes. In Africa Guinness growth slowed in the second quarter with weaker performance in Nigeria. This was due to the environmental, social and economic factors, including heavy rains and increased security challenges.

In the first quarter in Latin America we saw a buy-in ahead of price increases in Mexico and in Venezuela. Phasing was affected by soft comps as currency restrictions constrained sales last year. First quarter net sales in Asia were strong due to a buy-in ahead of price increases in the Middle East and phasing of shipments in South East Asia. Our second quarter performance was in line with expectations with a strong festive season.

In summary, our first-half top-line performance has been robust across our regions and categories. We continued to invest behind our brands to support this top line growth. Our reinvestment rate increased by 40 basis points to 15.8%, with marketing investment up 10% and nearly three quarters of that increase was focused on emerging markets. For most categories spend was up in line with the total increase.

In scotch 80% of the incremental spend was in emerging markets, principally focused on Johnnie Walker. Investment behind the brands was driven by Asia and Latin America as we continue to drive recruitment and premiumization. Spend on our vodka brands increased in both the developed and emerging markets. We increased spend significantly behind Smirnoff on the I Choose and Nightlife Exchange campaigns. In developed markets investment was again driven by Ciroc, Smirnoff and Ketel One in North America. In beer spend was also focused in the fastest growth markets with spend in Africa up 25%. Investment in Guinness increased across all its major markets and was up double digit in North America and mid single digit in Europe and Asia Pacific.

Turning now to margin, gross margin improved on an organic basis, up 70 basis points, mainly driven by price increases and the mix improvement delivered by the growth in scotch. Input cost inflation has been mitigated by cost savings from restructuring coupled with our continuing program to improve the efficiency of our supply footprint. As a result increases in cost of goods sold per unit were held at about 1.5%, mainly driven by a 3% increase in Africa given the higher inflation rate there.

Every region delivered gross margin improvement. North America benefited from their supply restructuring programs and positive price mix. In Western Europe gross margins improved due to lower cost of goods, particularly in beer. In Latin America, Africa and Asia Pacific strong volume growth and price increases drove gross margin expansion. In Africa double-digit top-line growth reflected the higher inflation rate, which also affected input costs, but gross margin still improved.

As you saw on the previous slide, we have invested behind our brands and targeted those opportunities that will drive the greatest future growth. We continue to invest in our emerging market platforms and overheads in these areas were up 15%. These investments were largely offset by savings from our restructuring programs, which delivered benefits of GBP13m in the first half. In summary, we have increased our gross margin and invested in the long-term growth of the business while expanding our operating margin.

We delivered free cash flow of GBP500m in the half. Higher operating profit drove nearly GBP125m of incremental free cash flow. However, outflows were higher in the half driven primarily by the increase in working capital. This half always has a seasonal increase in working capital.

In addition, though, we increased investment in this half in maturing stock to fuel our future growth and incurred costs in respect of the move to our new rum distillery in the Virgin Islands, which has now started production. One-off factors included higher debtors to the buy-in ahead of expected duty increases in January 2012 in France. Nigeria also increased its stockholdings to mitigate the potential disruption as we brought on much-needed new capacity in the peak season. This impact was amplified by weaker sales due to the current economic challenges there.

Higher interest payments were primarily driven by lapping the interest rate swaps which we monetized last year. Higher tax payments were due to the phasing of payments and tax audit settlements in the UK. Our capital expenditure is higher this year due to our investments in Nigeria, East Africa and North America, coupled with lower disposal proceeds.

The costs associated with the initiatives that we have put in place to improve operating margins and make this business stronger are reflected in exceptional charges. I anticipate these charges will actually be lower in fiscal '12 than we had originally planned with a total cost of about GBP100m against the GBP120m we announced in August. Similarly I expect the cash outflow from these activities to be lower than we had originally estimated, about GBP180m this year, roughly GBP25m lower than we announced in August.

The gain we reported as sale of businesses reflects the change in accounting for our additional Shui Jing Fang investment as we now have majority control of the Quanxing holding company.

Now let me spend a little time on the exceptional tax charge of GBP518m. As we anticipated, the tax rate before exceptional items has reduced to 18% this year from 22% previously. We currently anticipate that 18% will be our ongoing tax rate. The reported tax rate includes the exceptional tax item you saw on the previous slide and is therefore 45.2%.

Last year we didn't have any exceptional tax charges and so the pre and post-exceptional tax rates were in line. During the period we finalized negotiations with tax authorities which confirmed a favorable change in the basis of taxation relating to intangible assets, mainly brand values and how they are amortized for tax purposes. This has reduced the ongoing tax rate and brought it in line with our cash tax rate. However, this change in the basis of taxation resulted in a lower write-off of -- in a write-off of deferred tax assets which we had established under the previous tax basis. This write-off gave rise to a non-cash charge of GBP524m which increased the reported tax rate.

And finally, moving down the income statement to EPS, associate income was up GBP18m driven by the performance of Moet Hennessy. The net finance charge was broadly unchanged. Our effective interest rate was about 50 basis points lower at 4.7% and average net debt was up roughly GBP750m to GBP8.3b as we funded the acquisition of Mey Icki with short-term debt and our strong free cash flow. I would expect our interest rate for the full year to be a little higher than in the first half given floating rate interest forecasts. Also I'm currently assuming we will move to a higher proportion of fixed debt but the final decision will depend on the interest rate outlook and market conditions.

EPS excluding exceptional items was up 16%. Excluding the impact of the reduction in the tax rate from 22% to 18%, EPS was up 10%.

In summary, Diageo is building momentum. Our net sales growth was strong in the half with continued growth in emerging markets and a solid performance in North America. The restructuring of our European business was achieved as planned and overall the performance there was in line with our expectation. 4 percentage points of positive price mix marks a significant improvement over last year. This price mix improvement and our efficiency programs led to a further gross margin increase. We've invested behind a number of priorities we believe will drive growth, primarily in emerging markets and behind growing categories in North America and Europe.

Our increased focus on costs is delivering results and coupled with our top line performance it generated 60 basis points of margin expansion. And finally we've maintained our robust financial base and our strong debt to EBIT ratios while funding our acquisitions in the half.

As Paul said, we are cautious about economic trends in 2012 but the solid and well-balanced results we've delivered in the half give me confidence that we are on track to achieve the medium-term guidance we described last August. And now I'll hand back to Paul.

Thank you Deirdre. At our conference in November I spoke about making a strong business stronger and these results demonstrate that we're doing just that. I'm going to spend some time now talking about how we built the momentum which Deirdre has just described and I will start with the investments we have made to drive top line growth.

The momentum behind our improving top line growth is the result of our consistent investment in marketing behind effective campaigns, our successful innovation program and the renewed focus that we have put behind regional sales teams.

We have more of the world's leading brands than any other company. We are focused on extending those leadership positions and in the half we've gained share in over 60% of our markets. Our strategic brands have grown fastest. Johnnie Walker has generated a third of our growth but it didn't set the pace. Buchanan's grew even faster with 27% growth and Ciroc grew 50%. In vodka Ketel One grew over 10% and the strong performance of Smirnoff in Western Europe where it grew 9% was a big contributor to the overall improvement in the brand's performance. 11% growth of Guinness in the emerging markets helped offset the weakness of the beer category in Europe and Guinness grew 5% globally.

Let me start with marketing, which we increased by 10% in this half following a 10% increase in the same period last year. Our incremental marketing spend has been focused on the biggest growth opportunities and that is why over 70% of our incremental spend was in the emerging markets.

But we have also increased our marketing spend in North America, targeted at the growth opportunities. As consumer trends are mixed in that market in some areas spend has been maintained. We're increasing our spend on our vodka brands to lead the growth of that category and we've increased marketing spend behind the launch of new products. We're also spending more on advertising specifically to the increasing ethnic diversity of our consumers. This focused approach to our spend in North America is also demonstrated by our spend by price point, with investment up significantly on premium and super premium brands.

In Western Europe spend is up behind Smirnoff Red and Captain Morgan as these are growth categories where we have clear leadership. Smirnoff has had a strong performance in the first half, particularly in our key focus markets for Western Europe of GB, Ireland, Germany and France. Our spend was around mass participation in Smirnoff Nightlife Exchange and our media spend reached 23m consumers with 14,000 mentions in print media. Similarly Captain Morgan grew double digit in Western Europe behind significant up-weighted spend in Germany and France.

In addition to increasing spend, the range of our brands gives us enormous scope to reach consumers over a number of platforms. So while marketing was up, our marketing impact increased by even more. In China, for example, we now have an online shopping page for Baileys on the Chinese equivalent of eBay, providing a cost effective way to reach 190m female Internet shoppers.

In Mexico and Colombia we launched Buchanan's Time to Share. It's a word of mouth campaign supported by TV where consumers who donate four hours of their time for volunteer work connected to education get a ticket for an exclusive concert with an international artist. Nobody will be able to buy a ticket. The only way to go is by donating the four hours.

The launch of the new Johnnie Walker Blue Label bottle this half was through a series of exclusive private tastings in China, in India, Thailand, Vietnam, Brazil and Mexico and each one had a local cultural relevance. We then leveraged social media and created nearly $30m worth of coverage.

In Africa Guinness has carved out an important space as the number one beer for football fans in Nigeria with activities such as bringing the Argentina football team to play the Nigerian Super Eagles for the first time in Guinness The Match. It generated GBP2m in earned media value as the match was broadcast live to an estimated audience of 42m people. And of course we're now running a second series of the highly successful Guinness Football Challenge. In Africa we're now filming our ads in the region in several local dialects and featuring the local community.

Diageo has a track record of successful and sustainable innovations and at our conference in November we showcased the depth of our innovation pipeline in North America with particular focus on Ciroc which we introduced new to the world and is now a major super premium vodka brand. We're using innovation to access the key growth trends, the luxury opportunity, the emerging middle class and the female consumer. And in the half we launched a further 80 new products.

We are premiumizing our brands through innovation and we delivered nearly 20% growth of our Johnnie Walker super premium brands through special gift-packs, first for Diwali and more recently for Chinese New Year. You can see the great packaging we use for Johnnie Walker XR 21 on this slide.

Understanding consumer motivations in this luxury space is key to success. Gold is an important part of the festival occasions across Asia. And we test launched Smirnoff Gold priced at three times that of Smirnoff Red and the rate of sale is one and a half times that of Smirnoff Red and it's driven 3 percentage points of share gain and gained 5 percentage points of share against the nearest competitor.

Innovations are also meeting the opportunity we see in the growth of the emerging middle class and we are launching heritage brands such as Haig in Latin America at affordable price points. We also believe there is significant opportunity to unlock growth from exclusively targeting female consumers. We're doing this across all markets. For example, with Smirnoff Whipped Cream and Fluff Marshmallow in the US, and Baileys Biscotti in Europe.

Innovation unlocks growth in the developed markets. In Ireland for example we've introduced new liquids and dispense mechanisms to offer perfect cocktails in bars which do not normally serve cocktails. Smirnoff Mojito is now available in over 600 outlets which are selling a total of nearly 40,000 cocktails a week.

Having built our sales capability centrally, last year we moved the focus of our sales operations into the regions as part of our operating model changes. We can now tailor our consumer programs and our innovation agenda with each of our key global customers. In Western Europe, for example, more than 50 customers agreed new initiatives in shopper marketing and category development which are forecast to deliver an incremental net sales benefit of over GBP20m.

All our regions increased their ease of shop programs. In Western Europe it was implemented in 27,000 stores, up nearly 25% on last year. In the half we also deployed more shopper marketing initiatives than in any previous half-year with an increasing mix of programs that are differentiated for our priority customers and where we can leverage our wide brand range by category. And on the slide you can see our Smirnoff execution in European duty free.

The operating model changes we implemented for FY'12 had two aims, to drive efficiency across the Group and to focus our resources to drive growth. This new operating model is now in place. We've delivered the overhead reductions we planned in corporate costs, and in Western Europe and North America. Overheads are flat in North America, down GBP10m in Western Europe, and corporate costs are down GB13m. While overheads are up in the emerging markets, they're down as a percentage of net sales as we drove efficiencies in those markets as well.

Our supply restructuring, primarily in North America and the UK, is also on track and as Deirdre said has mitigated input cost inflation in these regions. We've therefore been able to hold COGS per unit flat in these markets, which has contributed to the gross margin improvement that we've delivered.

We've announced changes to our Irish brewing operations to create a center of excellence. Just like our investments in distilling capacity in Scotland and in brewing in Africa, this investment in a single facility for Ireland will improve our cost per unit and reduce our environmental footprint.

At the beginning of the fiscal year we introduced a new performance management system based on 21 key markets and aligned our incentive systems to drive enhanced accountability. As I travel between our markets I can see the impact this is having in improving the line of sight between actions and outcomes. It's early days but I'm confident that this change will be key to delivering our aspirations at a market and regional level.

Diageo's emerging markets business is based on the routes to market and brand strength which we have built through consistent investment. The individual leadership positions of our brands combine to make Diageo the leading international spirits company in Latin America, in Africa and in Asia. The focus of our investment in the emerging markets has continued again this year and in the half we've increased marketing spend by 20% and investment in our sales and marketing organizations by 15%. This investment drove volume growth and 8 percentage points of price mix as we accelerated the organic top line growth of our emerging market business to 18%.

In addition, we're expanding our brand portfolio in these markets. In Brazil for example where our business was 80% scotch we've seen very strong growth of our vodka brands, especially Ketel One and Ciroc. And while our scotch brands grew over 20%, we're now building leading positions across more categories in these important markets.

Innovation is also expanding our reach into fast-growing consumer trends, especially the rapid growth in the middle class. In India for example we recently launched Rowson's Reserve into the growing IMFL prestige segment. It's a great-tasting brand in a growth segment and given the improvements that we've made to our route to market in the past two years we are now confident in our ability to access this segment successfully.

We've also expanded our presence through acquisitions which have given us leading brands in premium local spirits and beer. Our acquisition of Mey Icki added over 2m cases at an operating profit margin of over 40%. In addition we've folded our international brands into Mey's sales organization which has already contributed to the improved growth rates that we've seen for these brands. Serengeti Breweries, which we acquired last year, has delivered a strong performance and in the half we agreed the acquisition of the Meta Abo brewery in Ethiopia. We have now extended our ownership in Shui Jing Fang and see a marked increase in the sales outside China now that we have distribution of the brand in duty free.

Our North American business is our biggest and our most profitable. In the last year we've made changes to enhance our position. As the leader in US spirits we've introduced new ways of working with our distributors which give us an aligned approach across the key growth opportunities. This has already improved our focus and has contributed to improved top line growth. We have rationalized our wine business and integrated it into our spirits business. And while the wine category remains weak we have seen our performance improve.

We've increased marketing spend behind new campaigns which has re-energized Smirnoff, Captain Morgan and Tanqueray. Stronger volume growth of our strategic brands together with moderate price increases has driven 5 percentage points of price mix, in turn driving further gross margin expansion. While marketing increased as a percent of sales, operating margin improved as overheads fell as a percent of sales. This is efficient growth.

Given the current economic environment in Europe we made the decision in 2011 to create an integrated Western European business which could focus on our leading brands and our key customers and to separate our in-market organizations for the fast-growing markets of Russia, Eastern Europe and Turkey. Investment decisions would be made centrally for Western Europe delivering efficiencies in spend and speeding up the decision-making process. It also gave us a sharper focus on the biggest growth opportunities.

We have begun to see the benefits of this new model. In key categories such as rum and vodka we've delivered strong growth, with Captain Morgan up double digit and Smirnoff up 9%. The economic situation in Ireland, Spain and Greece is reflected in the performance of those countries. But in countries with a more benign economy we've delivered a good performance and in Germany and France we've delivered double-digit growth. In addition, our focus on the super premium opportunity has driven over 20% growth in our core reserve brand portfolio across Western Europe.

As you may recall, at our last results presentation we laid out this slide with our route map for the business over the medium term. This first-half performance demonstrates the sharper focus we have brought to bear through the changes that we've made. It's driving the efficient growth that we believed that it would.

We've delivered good growth in an uncertain world with 7% organic net sales growth and 9% organic operating profit growth. But the global economic outlook, whilst improving, remains uncertain and therefore we believe it's prudent to be cautious about the market environment we face in 2012. But this is a good set of balanced first-half results and it has reinforced our confidence in our brands, our routes to market and our teams around the world. We're confident that it's provided us with a good start to the delivery of our medium-term guidance. Thank you.

Joining me now to take your questions I have Deirdre, our five market Presidents and Andy Fennell, our Chief Marketing Officer. So we'll move directly to your questions and I'll hand over to the Operator. Operator?

(Operator Instructions). We'll now take our first question from Philip Morrisey from Berenberg. Please go ahead.

Thank you. Paul, you note in the statement that you've taken selective price increases in North America and I just wanted to confirm that that included the US as well as Canada.

And if so, wanted to ask what percentage of the portfolio in the US has seen list price increases in the period and indeed how do you see the prospects for list price increases in the US as this calendar year progresses?

And then secondly, if I may, on margins in Asia, you've seen strong performance here in the first half and I just wondered how sustainable you thought that 200 basis point plus pace of organic margin expansion might be both in the second half of this fiscal year but also into fiscal '13? Thank you.

Thanks Philip. Ivan, I suggest you handle the price increase in North America and Gilbert, you can handle the margin question in Asia.

Good morning Philip. If you look at our results, as you can see we have very strong price mix coming through in North America, say about a third of it is price. And I'm feeling good about the strength of our brands. We are building brand equity where investment, re-investment rates are up. And so we are able to now steadily take price on our priority brands. One third of what you see in the first half price mix comes through price. We'll see it continue into the second half. And clearly as we monitor the improving strength of the marketplace and our brand equity strength growing, we will use that to guide continued price increase going into next fiscal year as well.

Thank you.

Philip, on your question on margins on Asia, our strategy in Asia is paying off. As I promised you guys when we met last year in May I said that we will deliver in Asia double-digit top and bottom line and ongoing operating margin improvement. And our strategy to focus behind scotch and super deluxe is paying off, which is yielding the operating margin improvement. We see still growth in super deluxe scotch and we foresee operating margin to keep improving going forward.

That's great. Thank you.

Our next question is from Ian Shackleton from Nomura. Please go ahead.

Yes, good morning. You've obviously had a very good performance in H1 with your revenues up 7%. I just wondered, you have flagged a number of technical effects, such as the (inaudible) in France, we did have an early Chinese New Year, you've also mentioned Spain I think. If we looked at the real underlying number how much are those technical effects really worth in this first half?

Deirdre, do you want to --

Ian, the technical effects that we referred to were really talking about the first half versus the second half performance. So there were some. As we pointed out when we released our first quarter numbers, there were some specific technical effects that caused the first half versus the second half to look different. I wouldn't point to any specific technical effects across the first half performance that's overall impacting the trend.

So really it was Q1 to Q2. So Q1, Q2, they level out. This is a pretty good underlying trend. Now we offered our guidance six months ago. These numbers give us great confidence in that guidance, but it's still too early to declare victory here. So we think it is prudent to stay with the guidance that we offered.

I'll explain, Ian, the France and Spain effects are less than GBP5m so not material at the Diageo level.

Okay, thank you very much. And just if we could follow up on Nigeria where obviously you flagged, you are flagging a bit of a slowdown. How dramatic is that? Particularly as we go into 2012 with the political issues, could we see this going ex-growth do you think in 2012?

Let me ask Nick to answer that.

We saw a bit of a softening in the market in first half and we were capacity constrained but the additional capacity we had planned came on stream at the end of November and that's fully operational now. We had the uncertainty of the fuel subsidy removals and that's been by and large resolved now and the market is back seemingly operating normally. And so we were a bit uncertain at the beginning of January, but actually we've picked up now very much. The bigger uncertainty I suppose is Boko Haram, the terrorist uncertainty that we've seen in the north. Hopefully that will be constrained up there.

And so I think there is a degree of increased uncertainty, but the fundamentals in Nigeria remain the same. It's long term very attractive. We've got very strong brands, the additional capacity has come onstream and I'm confident in that business there.

The other thing I would say about our African business, Ian, is that you look over the last decade, yes, in any given year there was an issue with this market or that market, but overall our performance trajectory has been pretty steady, very dependable. And I think that speaks to the diversity of our business in sub-Sahara. So I'm confident that we'll continue to see the growth come through in that region.

Okay. Thank you.

We'll now take our next question from Simon Hales from Barclays Capital. Please go ahead.

Good morning everyone. Thanks for taking the question. A couple please if I can. Firstly, Paul, I assume that your cautious outlook statement in regards to the economic environment is largely centered on perhaps what we may or may not see in Europe. Just building on from your comments to Ian's question, could you just talk a little bit more about the real underlying consumer trends you've perhaps seen through Q1 into Q2, perhaps into the early part of the new calendar year in some of your core markets, particularly maybe GB?

And secondly just with regard to the tequila category, I wonder if you could just talk a little bit more about what's happening in the category there, what's happening particularly with Cuervo's performance and update us, if you can, on any further discussions you've had with the Beckmann family on the future of your partnership there.

Okay. Maybe I'll ask Ivan to talk about tequila, but let me give you a perspective on how we're kind of seeing the world. The first thing is we're not seeing anything that you're not seeing, but it is quite uncertain and how things play out remains to be seen.

That said, start with North America, we continue to see a steady improvement in the economic environment. If you look at the emerging markets collectively now 40% of our sales, collectively they delivered 18% growth. We're not fundamentally seeing anything different there. We have continued to see a rising number of emerging middle class who aspire to our brands and our brand health in these markets is very, very strong. So we expect more of the same there.

Europe is quite polarized. Yes, we see softness in Southern Europe, but our teams in those markets have handled it very, very well and I feel in Europe, we've now got a degree of predictability that maybe we didn't enjoy in the past few years. Once you start to move north, Germany and France is very strong, double-digit growth. And we can find growth opportunities in Europe, but let's not fool ourselves; it's tough. But in aggregate, I think the fact that we've held our business flat is very creditable to the team in Europe.

Ivan, tequila?

The tequila trends in the US, I'd say overall the category is healthy. What you're seeing within it is some shifts. You're seeing a shift from Gold to Silver. And in the Cuervo numbers, which we don't break out, Cuervo Silver is doing extremely well and growing nearly double digit. Gold is under pressure. And the second big trend I would say is premiumization. So our higher marks in tequila are doing very well. Don Julio is running very strongly in double-digit growth, very strong in the on-premise. So overall what you see in our reported numbers on Jose Cuervo also reflects a level of destocking in the distributors. The underlying trend on market share is more favorable.

Regarding our discussions with the Beckmann family, they are ongoing. And as you've heard from Paul before, our intention is to secure a long term participation in the tequila category globally.

Just building on Ivan's point, (technical difficulty). If you look at our collection of high-end brands, so the Jonnie Walker Blues, Tanqueray 10s, the Zucapa, the Ketel One and what (technical difficulty) first-half result, we have seen in aggregate 25% growth. And it's pretty broad based; it's across many geographies. We see that trend continuing and clearly that has a very positive impact on the leverage that we get through the P&L.

That's great. Thanks guys. Can I just go back, Paul, to general comments on the outlook? You didn't mention Great Britain in terms of your comments in relation to Northern Europe. What was the underlying trend really like in terms to consumer offtake? Have you noticed any real change there in recent months?

I see the GB market as quite polarized. I think it's polarized between the southeast and the rest of the country. I think it's polarized between channel. But again our high-end brands in this market are doing very, very well. It's encouraging that the rate of pub closures has definitely slowed. I think that's positive. And whilst our sales were off somewhat in the first half, the price mix that we saw was very positive. So overall I would see GB kind of continuing pretty flat.

Perfect. Thank you very much.

We'll now take our next question from Andrea Pistacchi from Citigroup. Please go ahead.

Hi, good morning. I have a couple of questions on the US please, one going back to Philip Morrisey's question on pricing in the US. You said that you're taking selective price increases and you said that pricing has contributed about one third to your 5% price mix. Just a little more granularity there. What's -- I imagine the situation is still difficult, is it, on vodka, in rum, in tequila and those core categories? Is there any pricing going on, on there?

The second question is on your mix, which has probably slowed slightly in the quarter. And how I see it, there are two drivers of your mix. On the one hand, your super premium brands growing strongly and, on the other hand, the low -- or the sharp declines of your low-end brands. Now going forward on more difficult comps for these premium brands, would you --- do you you think the current sort of level of mix is sustainable or would you expect a bit of a slowdown?

Ivan, I'll hand over to you. I do think we've got to be very careful about going down this rabbit's hole of first quarter, second quarter. We've tried to lay it out. Overall the trends are pretty consistent and there has been nothing that has massively switched between those two quarters, certainly in the US or more generally elsewhere.

But specifically for pricing, Ivan?

Sure. On pricing I would say we are -- in the first half we've taken pricing on a number of brands across our categories, brands like Johnnie Walker, Ketel One. Again we take it by price, by brand and by market, by state. But it's pretty broad based and, as I said, I expect that trend to continue because the brands are healthy, they have the equity strength and I'm actually very pleased with how I'm seeing pricing come back into these brands. And it enables to sustain the reinvestment rate that you can see in advertising as well.

In terms of going forward, I'm pretty confident that overall price mix we will be able to sustain. If you look at the underlying trends in the industry right now, we're back to that classic chart where the ultra premium segment of the industry in IRI is growing 10%, super premium is growing 7%, 8%, premium is growing at 4%, and the value segment is flat or declining. I think our portfolio plays very well to those dynamics. What I'm very pleased about is the strength we're seeing in the, we talked about it at the investor conference, on Smirnoff and Captain Morgan. Those equities are building and you can see it in our results, the sequential improvement coming through.

So overall I would say we would probably see the mix, the balance move slightly more towards price. But I would expect mix to continue to be a positive factor as the underlying consumer trends in the US are supporting that strongly. We're also seeing a robust on-trade, which helps the business.

And, as Paul mentioned, our reserve brands, in the first half Johnnie Walker Blue was up 35%. It's fantastic to see these top-end brands come back so strongly. And the positioning of affordable luxury, which is what these brands represent, I think is resonating pretty consistently now with the US consumer. And I'm also very proud of the brand-building efforts we're putting behind these brands.

And so my overall outlook on price and mix continues to be cautiously confident that it will sustain over the next half and into the following fiscal year.

Thanks Ivan. That's helpful.

We'll now take our next question from Mitch Collett from Goldman Sachs. Please go ahead.

Hi there. I was wondering if you could split out the EM growth number you've given between spirits and beer, and I guess the contribution of each to that would be useful as well.

And then secondly, marketing's obviously gone up this half and it looks like you're getting significant reward for that in several key brands. Could you maybe talk broadly about where you see the marketing to sales ratio going long term? You're back to your usual level of spend. Could we see it increase beyond here such that you could drive further growth in the key brands? Thanks.

I don't have that split at my fingertips. We can see if we can figure it out and get it to you. But what I would talk to directionally -- and maybe, Nick, you can speak to this -- in Africa we are seeing very, very strong growth in our beer business, but the route to market that we've created and the organizational strength that we have in our market is really helping propel spirit sales. And I'll ask Nick to talk to that in a moment. In Latin America basically our business is spirits and therefore that is definitely driving the growth there. And I would say also in Asia, it is definitely tilted towards spirits growth.

But, Nick, why don't you speak to Africa because there's some great examples in Africa of what we're doing?

Yes, in Africa spirits grew overall in terms of net sales by 18%, against beer at about 12%. It was a fantastic performance. And within spirits Johnnie Walker was an absolute star, growing at 33%. The consumers in Africa are the same as consumers around the world in terms of aspiring to our brands. We make them available through driving distribution, through getting the right format. People will very much buy into them and really love them.

Now what's driving that, it is our route to market. We've integrated our beer and our spirits distribution in many of our markets. We did that in South Africa two or three years ago and it's yielding great benefits. We continue to gain market share there in spirits. And over the last 18 months we've done that in both in East Africa and in West Africa. And since we've integrated beer and spirits together we've really seen an acceleration of spirits growth across the continent. I would say Johnnie Walker is spearheading that growth and I expect that to continue.

And it's noticeable that your, couple of the spirits brands within Africa have negative price mix. Is that a function of country mix or is that a deliberate drive to make those brands more affordable?

The last part in terms of country mix, as we're seeing the countries' brands change, a lot of that is being driven by country mix.

I think actually when you look at within country the pricing on spirits is pretty robust.

Regarding your question on A&P spend, we have to recognize that what you see is simply the aggregate result of our strategies market by market. However, I have to say that I like the profile of our P&L. Our brands are well invested in, but equally if we see opportunities for growth we will keep this momentum going. We see it as very healthy and in the long term interest of the firm. So it's a good profile of investment. The other thing that we should never overlook, in emerging markets we have progressively coming onstream many, many millions more of the emerging middle-class consumers. And therefore our footprint as well as being very well developed, we're set to see very good demographic trends come our way in these markets.

So to your question on advertizing, why wouldn't we continue with this profile? But equally I do also make the point that our brands are very well invested in.

Thanks.

We'll now take our next question from Antoine Belge from HSBC. Please go ahead.

Yes, good morning. Antoine Belge, HSBC. Three questions. First of all, sorry to come back on Western Europe and I understand that H1 trends are more a reflection of the underlying trend than Q2 versus Q1, but I remember that in Q1 you mentioned that in the south of Europe you were starting to experience a more favorable basis of comparison. And I'm wondering, it probably has been the case also in Q2 so shouldn't we now have a more favorable base for those part of Europe which are doing less well? And isn't this indicating that actually Q2 has been a bit weaker than Q1 on an underlying basis?

The second question is more on maybe some qualitative comment that you could make on Chinese New Year around what you're getting from your network in terms of sell-out.

And finally coming back to the marketing questions, just want to make sure I understood correctly. So the marketing reinvestment ahead of sale would be a function on what you're achieving in terms of gross margins. I mean, should we assume that if the gross margin continued to move nicely then there should be, let's assume, some reinvestment in marketing?

Basically, let me take the marketing question first, if we see good ideas we have the capacity to invest behind them. Equally if our sales growth tracks with our marketing growth, that's also fine, given my point about being well-invested in our brands. But if we have headroom and we see good ideas, we will back them. Andy, do you want to add more color to that?

I think there's -- there isn't a magic number for the ratio. We need to do both, lean into to growth ideas, as Paul said, and we've been doing that for a number of years, and we need to use our scale to drive efficiencies from our pre-existing investments and we'll continue to do that around the world, as you can see in this set of numbers.

Regarding Western Europe, there is an arithmetical consequence here. As we've gone through a certain level of contraction the performance is less relevant to the total company. Having said that, we're still seeing softness in those markets. There is no sign that they are leveling out anytime soon, but clearly they're a smaller component of the total and the rate of decline is also decreasing.

Gilbert, on Chinese New Year?

Yes, Antoine, on Chinese New Year, anecdotally consumer demand on our brands in China is still going very strong, especially on the super deluxe side of the business. Johnnie Walker Blue Label in the first half had a stunning performance in China, growing higher than 50%, which has been consistent. Over the last six quarters our super deluxe scotch business in China has grown over 40%. So this trend on super deluxe is still going strong and we are still gaining market share, which is great.

Maybe a follow up on scotch in China. Would you consider that in terms of share of throat, so to speak, now scotch is no longer losing market share to cognac in the region?

The way, Antoine, we look at it, scotch is growing and cognac is growing. Now if you look at scotch, total scotch is growing at 3%, but most importantly super deluxe scotch is growing at 12%. And this is where we see the biggest opportunity for scotch in the future and that's where we're channeling the bulk of our energy to fuel and keep driving this trend. And this is where we are winning big time.

Thank you very much.

We'll now take our next question from Trevor Stirling from Sanford Bernstein. Please go ahead.

Good morning. One question. Sorry to give you another Q1/Q2 question, Paul, but it's relating to China, and Asia-Pacific rather more specifically, that there was an apparent slowdown in Asia-Pacific and I wonder maybe, Gilbert, could you just give us a little bit of color around that?

Gilbert, overseas?

Trevor, look, there is no slowdown in Asia-Pacific. Consumer demand on our brands is still very strong. I'm very excited about the prospects of our business in emerging Asia. We see our business growing strongly in India, in China and in Southeast Asia. And there is no reason why I see these trends not to continue in the second half. And in the developed markets in Asia of Australia and Korea, yes, the first half was challenging, but the second half will be better.

Thank you very much, Gilbert.

We'll now take our next question from Melissa Earlam from UBS. Please go ahead. Please go ahead. Your line is open.

Hi, good morning. I've got three questions please. First of all, you mentioned organic sales growth across your emerging markets of 18% in the half. I was wondering if you could give us an idea of what the organic EBIT growth was for the EM region.

And secondly, you saw a pickup in scotch inventory in the half. I was wondering if you could quantify that and give us an idea of whether this is part of a broader plan to step up your overall scotch inventory. And given the quite big swing in net working capital outflow in the first half I was wondering if you could give us a broad range for what the change in working capital might be for the full year fiscal '12.

I'll ask Deirdre to handle the working capital. On the 18% organic sales growth in emerging markets, the actual profit growth was higher. I think it was about 4 points higher directionally. So we're getting a very good mix effect coming through on that sales growth.

Your second question, Melissa, was what?

Scotch inventory.

Scotch inventory, yes, you're going to continue to see us build our inventories in scotch. I've mentioned several times about the favorable demographics in the emerging markets and the lucrative prospects for scotch. We're going to have to make sure that we lay down liquid to serve those consumers. And that's what we have been doing and will continue to do.

Deirdre, working capital?

Hi, Melissa. I think the overall working capital in the first half, we would expect to see about the same. If you look at the underlying growth in the business we're seeing impacts on the growth in the receivables and importantly we continue to lay down maturing stock given the very strong growth in our scotch business. So on a net-net basis I would think it would be in the order of about the same.

It's very interesting coming back to this emerging market issue. We've said for some time that once we start to get the scale, we continue to ride the demographics, but this is going to be a critical engine of growth. You're starting to see that come through.

Thank you.

Our next question comes from Jamie Isenwater from Deutsche Bank. Please go ahead.

Good morning everyone. A couple of questions from me. Firstly for Deirdre, in terms of the restructuring charges that you've updated us on, is the lower cost for this year a shift in timing or are there actually some savings coming through? If so, what's driven that?

And then secondly, just on Ciroc and Mr. Diddy, there were some press reports that he was going to launch a tequila and I presume that wasn't in conjunction with Diageo. So I just wondered whether there was any contractual obligations around him starting competitive products or whether it's even true. Thank you.

Okay. Then Deirdre and then Ivan, Ciroc.

On the restructuring costs, as you know, when we announced those there were some estimates included with respect to the movement. I do not expect that to just be a shift. It is in fact a reduction and it just has to do with the redeployment of some people, some lower overall cost. But the short answer is it is lower and absolute. We're not expecting that to be a timing shift.

On Ciroc, as you know, there's lots of speculation and stuff written about our partner so I wouldn't believe everything you read. But what you can be assured is as we have structured our arrangement with Mr. Combs, we've obviously talked about the long term of how we best protect Diageo's interests, and he is. So without disclosing anything about our contract I can assure we feel comfortable about our future with Mr. Combs.

Excellent. Thank you very much.

We'll now take our next question from Alex Molloy from Credit Suisse. Please go ahead.

Good morning. On the UK, just coming back on something you said, Paul, down in the second quarter, but I think you said to an earlier question that you'd expect it to continue about flat. Am I reading that wrongly or do you expect that it would improve there in the second half?

We did have a weaker second quarter. We wouldn't expect the second half to follow that trend. And overall we think in the round it will be flat.

And what will change from the Q2 to the second half?

Andrew, do you want to talk specifically about the Q2 events?

Yes, I think, as we noted in the release, we've had a real focus on improving the quality of the shape of the P&L in GB. And we've delivered that. So on the half we're minus 2 at the sales line, but you've got 4 points of operating gearing there. A lot of that has come through us having less debt and frequency of promotion on some of our bigger brands, like Smirnoff in particular. And we'll continue to have that focus. It's working for us. So, yes, minus 2 to flat, that's the kind of range. We're certainly not seeing any improvement in category or industry volumes in GB anytime soon.

Thank you.

We'll now take our next question from Ann Gurkin from Davenport. Please go ahead.

Hello.

Hi Ann.

I have several questions if that's okay. One, I was wondering if I can get a further update on the progress with integration with distributors in the US. Is that meeting expectations? Can you give us some more detail?

Anecdotally, I met with one of our key distributors only last week. They are thrilled with the improved structure that's in place. But, Ivan, maybe you can go into more detail on that.

Sure, Ann. Very early good morning to you.

Hi Ivan.

No, things are going well. We've made very substantial changes in terms of taking our route to market to the next level. More resources, more focused on priorities like be on-premise and multicultural. We've realigned how we go to market, connecting marketing, trade marketing to the sales execution. Quite a substantial change and I would say we all feel very good about the changes. You can see it in our performance. And I think our partnership with our distributors has never been stronger and we are really focused on stepping up the executional excellence every day. So I think the Diageo route to market in the US is a big competitive advantage and we intend to keep it that way.

That is terrific. Second, maybe an update on global inventory levels at distributors. Is there any area of risk or any area of concern?

My sense is not. We obviously, as we go through our half-year close, look at that pretty carefully. I don't see any issue emerging there. Deirdre?

No, I don't see any issues on the distributor inventories.

And, Deirdre, can you help me with how you're thinking about currency impacts for the year now?

We had about a GBP30m impact in the first half. We expect for the full year to effectively it to net out so there'll be no impact at the operating profit line or it'll be minimal.

Super. And then finally, Paul, one of your key strategies has been realigning resources globally. Where are you versus that strategy?

We're absolutely on track. If you look in our developed markets and at the corporate level we have taken resource out, but equally we continue to invest in the emerging markets and I think it's up about 15%. And we will continue to do that to fuel the opportunities that I constantly reference. So we're absolutely on track.

Super. Thank you very much.

Thank you.

We'll now take our next question from Simon Marshall-Lockyer from Jefferies. Please go ahead.

Yes, thank you. Could you maybe give us a few further indications or insights into whether there's any shift or you're seeing any movement between the off-trade and the on-trade in the US? Give us a bit more color on that and how you see things panning out.

And the second question is on Mey Icki. Could you give us some indication of how the half went in respect to the core business, the raki business? Obviously you're indicating sort of strong demand for the premium brands, but how did the raki business go in underlying performance there at Mey Icki? Thank you.

Ivan, why won't you talk to the on-premise trends, which are positive, and Andrew on Mey Icki?

Right now the on-premise we figure in total is growing about 2%. And if you look at total in volume on spirits, the total spirits industry is growing in the 2% to 3% range.

The thing about the US, and if you go back to the 2008 crisis we did see a drop in the on-premise then. It is coming back nicely. Overall you need to remember the on-premise is about 22%, 23% of the total business. So I actually see the channel mix stay relatively resilient. You get a little bit of blips as you go through economic cycles, but not the kind of dramatic shifts you've seen in some markets in Europe.

And you also need to remember in the US, by virtue of the three-tier system, our profitability in the on versus off is relatively the same. It's a high-margin business in both channels and so these impacts are on the margin. They shift a bit, but no dramatic change. And I'm very pleased actually with the strength of the on-premise coming back because it's a good leading indicator as well for the health of the consumer and certainly the health of the beverage alcohol category.

Thank you.

And Mey Icki very much in line with our business case and that's despite an excise tax increase that's been applied to the category in Turkey since the acquisition. Quite significant market share gain over the last six months would be the other highlight. But we're very much on track is what I would say.

Thank you.

We'll now take our next question from Olivier Delahousse from Natixis. Please go ahead.

Hello everybody. Olivier from Natixis in Paris. A couple of questions. The first one is related to the non-cash item regarding taxes. I was wondering if -- I'm guessing this is related to brands mostly, but also to the US jurisdiction in terms of tax. I was wondering if, Deirdre, maybe you could comment a little more on that.

And secondly, I was wondering if there were regarding duty anything, any concerns regarding increases in other geographies for the total (inaudible), a little update on your perspective in that respect. Thank you, guys.

I think on the duty point -- I will hand over to Deirdre regarding the non-cash tax item. On duties we have to be alert to duties generally speaking around the world. That said, there are certain markets in the emerging market category where we're actually seeing duties come down because the want to eliminate illicit alcohol or whatever. So it isn't always right to look at it through the lens of the developed world. Nevertheless, we keep our eye on this. There is nothing horrible out there that we see lurking, but we're going to have to be on our game constantly.

Cash tax?

Yes, the write-off of the deferred tax assets was related to intangible brand assets. You may recall that at the full year we said that we expected our tax rate, our effective tax rate to come in line with the cash tax rate. That's effectively what's happened. As you know, the brand IP is owned in multiple jurisdictions. And we were able to reach a favorable agreements with the tax jurisdictions so that the basis of taxation now is no longer dependent on the amortization of those brands. And that's what caused the write-off of the deferred tax assets, but yet an ongoing underlying reduction in our effective rate.

Just a small follow up on that if I may. I guess you won't want to comment on competitors or peers, but is this -- can you mention whether these discussions that you have had with the tax authorities have been on a standalone basis or whether they are likely to have been made with other groups in the industry.

They were discussions that we had with the tax authorities. They were not industry wide.

Okay. Thank you.

We'll now take our next question from Nico Lambrechts from Bank of America.

Hi there Paul and team. Thank you very much. Since it's late in the queue and just two questions. The first is could you repeat maybe the actual cost savings number which you did in your prepared script?

And then the second question, apologies if I'm going a little bit deeper down the rabbit hole that you mentioned, Paul, but the first quarter number 9%, I think the underlying number was about 6% to 7%. The second quarter 5% growth, if we strip out the one-off benefits pre-buying ahead of excise, that's probably around 4%. Could you maybe indicate if there's in the next quarter potential technical impacts, i.e. reversals on the pre-buying in France and LatAm, and if you think that the reported number will be impacted negatively by these technical effects for the third quarter? Thank you very much.

Over to Deirdre.

On the benefits on restructuring we had said for the full year was around GBP40m. I don't have the precise number in front of me for the first half. It was a little bit less than half because they'll tend to increase through the full year, but we expect we are on track for that.

On the second question, can you repeat the second question?

Just asking are there any of these technical impacts that benefited the first quarter and second quarter, and specifically the pre-buying in Latin America and France that will reverse into the third quarter, i.e. the quarter into March?

Yes, as Andrew suggested earlier, the impacts in France, and there was some also in Spain, they're not material. So we don't expect it to have a material impact on the underlying trends. And, as I said earlier, I think the shifts from the first quarter to the second quarter, we're not expecting any of that to be impacting the full year trends or the underlying trends in the business for the full year.

And is it fair to say that the underlying trends were around 6% to 7% in the first quarter, slightly below 5% in the second quarter, and that your third quarter will face a much tougher comp than the previous two quarters? And should that have any impact on the quarterly numbers?

I think I would say, as you know, we're not giving quarter-by-quarter guidance in terms of the underlying results. I would say that the trends that we've seen in the underlying performance of the business we believe are sustainable. Again, given the comments that Paul and the Presidents have already made about the clear macroeconomic impacts that would impact consumer confidence, we're confident in the underlying performance of the brands. And the investments that we've made in the brands are delivering the returns that we've expected. It's coming through in gross margin and in operating margin, and right now we're not seeing anything that would impact that.

Thanks very much, Deirdre.

We'll now take our last question today from Pablo Zuanic from Liberum Capital. Please go ahead.

Okay. Good morning everyone. Hopefully last but not least. And I know it's late in the queue so very quickly, number one, the US margins are so much higher than the rest of the Company, but the US, the North American business is mostly whites. It's more white spirits weighted than the rest of the world and I've always thought that brown spirits would be more profitable. It's a larger country, more distribution costs, third-party distribution is mandatory so I'm just thinking why are the margins so much higher or is it that just the other divisions are quite low and there is a lot of upside? That's one question.

The second question, in terms of at the moment if I look at your numbers in emerging Asia in customer growth versus Latin America, they are both very similar, high teens, almost 20% on average. When you look out more longer term, which of those two is more sustainable? From outside one would think Asia, emerging Asia has more long-term growth potential, but maybe I'm missing something there.

And the third one and last, when you see all the growth around craft beer in the US, premium beer, now that new Bud Light Platinum is supposedly trying to compete with spirits, and I hear apparently ABI trying to launch a malt beverage, a rum malt beverage in line with Bacardi, do you see room to do something in that area or even to reignite your LTD strategy there? That's all. Thank you.

Maybe, Ivan, you can pick up that last point. Regarding the US, what I would say, and this is not dissimilar for many consumer products companies, the sheer scale of that market just gives a level of efficiency that does allow higher margins. If you think of your media reach, the fact that you can scale organization, a variety of things just point to it being generally a more profitable market.

Brown spirits, particularly at the high end, are seeing some resurgence and bring with them very attractive margins. So we can see this being enhanced.

I wouldn't want to call the race between, say, Asia and Latin America. Both of those markets have got huge potential. And if you look at what has been achieved in our Lat division, whilst Asia does tend to get a lot of the media attention, Latin America has been strong, very attractive growth for a number of years.

Ivan, on the craft side?

If you look at the trends that are happening in ready-to-drink beer, the craft space, it's quite an exciting space. Innovation does make a difference. And from Diageo's standpoint in North America this business is still important to us. The consumer demand, that is actually quite robust.

And as we go into the second half we actually, right now we have some new products in the marketplace. The Smirnoff premium mixed drinks line with products like the Screwdriver just gone into the market doing very well. And I have to say I'm also very excited about the Parrot Bay frozen cocktail line of pouches that we've introduced into the marketplace. Early days, but looks very, very encouraging. This is essentially getting a high-quality frozen cocktail in a pouch for about $2 and as you merchandize these products they're doing extremely well.

So I think the space is innovation intensive. You're going to have winners and losers and we've seen that in our track record here. But I'm optimistic about holding our position here and, as I said, going into the second half, you will see a fair degree of pretty exciting innovation from Diageo in this space in North America.

Good. Thank you.

Let me try and bring this to a close. And first of all, thank you for your questions. As I said in the presentation, this has been a good, well-balanced half-year performance and I do hope that in the last 90 minutes or so have been helpful to you to understand how that growth has been driven. I look forward to meeting a number of you over the next few weeks, but for now thank you for your time and goodbye.