Diageo PLC (DEO) 2019 Q4 法說會逐字稿

Good morning and welcome to the Diageo's Preliminary Results Investor Q&A Call. Your call today will be hosted by Diageo's CEO, Ivan Menezes; and CFO, Kathy Mikells. (Operator Instructions)

We are now ready to start the call. Mr. Menezes, please go ahead.

Thank you. Hello, everyone, and welcome to our fiscal '19 full year results investor call. I have a few opening comments and we'll open it up for Q&A.

You'll have seen, we delivered a really strong consistent set of results. Organic net sales were at the top end of our medium term guidance range and growth was broad-based across regions and categories. We delivered organic operating margin improvement ahead of our 3 year guidance. We also returned GBP 4.4 billion back to shareholders in fiscal '19 through dividends and our share buyback program and we're now back within our leverage policy target range.

Our fiscal '19 results are underpinned by the ongoing work we're doing to build a culture of everyday efficiency to invest smartly to drive quality growth. And also our ongoing commitment to delivering ambitious environmental, social and governance goals.

Fiscal '19 was an excellent year, helped by unusually benign volatility, especially in emerging markets and by strong innovation performance, some of which is not expected to repeat in fiscal '20. And so as I look to fiscal '20, I expect to deliver organic net sales growth in the middle of our mid-single-digit range. I also expect to deliver ongoing operating efficiencies and make a step up in marketing investment.

Our capabilities around marketing investments continue to get stronger and we see opportunities to invest, including behind new-to-world brands. These will take time to build, but will be an important part of our longer term growth strategy. As a result, I expect organic profit growth to grow about 1 percentage point ahead of organic net sales growth. We've clearly got more to do, but I'm very pleased with our progress in delivering our ambition to be one of the best-performing most trusted and respected consumer product companies in the world.

And with that, I'll open it up to questions.

(Operator Instructions) And our first question today comes from Simon Hales from Citi.

I've got a couple really please. Obviously, Ivan, you've talked again there about the step up in investment you're making in 2020, I think you mentioned in your earlier remarks that there will be a focus around the U.S. for that increase in investment. Could you just talk a little bit more about where that uplifting marketing spend will be going in the U.S. and probably perhaps broadly across the wider group? Secondly, just on the FX guidance for 2020, GBP 135 million tailwind to EBIT, I wonder Kathy, if you could provide a split of that between translation and transactional benefit? And also, as I look forward beyond 2020, I assume that the transactional benefit from FX given where rates are will continue into 2021, and I wonder if there is anything you can say in terms of guidance around that. And then, finally, just on the cash return story, the multiyear cash return story you've outlined today, should we expect the GBP 4.5 billion over 3 years to perhaps be skewed a little bit more to years 1 and years 2 in order for you to be able to stay within your target leverage range?

Simon, I'll take the first and then Kathy can do the next 2. In terms of our investment in marketing, as you saw at our Capital Markets Day, we now have much more rigor and analytical discipline behind understanding the returns on our spend and the effectiveness of our spend. As you point out, we have upweighted in the last year our spend in both the U.S. and Europe. You could see our reinvestment rates are higher there, and within the U.S. portfolio, we're very targeted around. So in the periods that just finished, I mean you would see upweight in brands like Crown Royal, Don Julio, some of our scotch portfolio, Ketel One. And going forward, we still see opportunities to back the big brands, but also to back the brands for tomorrow. So when you look at, for example, and I'm saying this globally now, when we look at the Gin phenomenon that's happening with say Tanqueray in new markets, we want to be in a position to lead that trend and support Tanqueray as it builds in markets like South Africa, Mexico, Brazil or you look at Copper Dog whiskey, which we are now taking out into many more markets, we want to put the backing behind it. So the U.S. team has a lot of rigor about how and where it allocates its marketing spend. And I'd say the shift in nuances, not just backing the big growing brands of today, we also want to back the brands that are going to be important for us 3, 5 years from now. And that's what's reflected in how we characterized our guidance for next year.

And then I'll start with your question Simon, on FX, so you referred to the impacts on operating profit. If I look at that translation relative to transaction, more of the benefit's going to come from translation versus transaction. And then all I would say with respect to looking out further than 2020 is, we do hedge at what I call on a rolling basis right. So 2020 hedging would be much less than what we would have -- I'm sorry, 2021 hedging would be much less than how we're hedged for 2020 as we stand here today. And I think, it's a little early to try and call rates, and therefore, hedging impacts, looking out beyond next year, but that's roughly what the split would look like for us and then overall I think if we then point to the GBP 4.5 billion in capital returns that we've discussed over the next 3 fiscal years, I start by saying that we were really pleased that we sized the program appropriately in this fiscal year to get back within the leverage range net debt-to-EBITDA that Ivan had referenced in his opening remarks, so we're now at 2.5x and we're looking to operate between 2.5 and 3x. And so overall the sizing of the program in any given year is going to be targeted to keep us operating within that leverage ratio that we're looking to target. And I would say, we'll continue to look at all the different ebbs and flows during the course of the year, 2 that I would point out to more specifically would be FX, which can move Diageo's results. And then how much M&A are we transacting in any given year also just impacts how much surplus capital we have in any given year. So those are the things that we will take into consideration. And then lastly, I would say we will obviously give you an update on the execution of the program as we report results that (inaudible) and during the year.

Our next question today comes from Trevor Stirling from Bernstein.

Two questions from my side, please. The first one relating to the buybacks relative to the cash returns. Kathy, I think you said cash returned to shareholders over the next 3 years because up to now it's all been 100% buybacks. As you're trying to look at the mix of buybacks and dividends, is that change in policy largely just because the share price is so much higher than it was a couple of years ago? And the second question, relating to the second half, there was clearly a slight slowdown, which you had warned us to expect. If you look at that slowdown, is there anything that slowed down a little bit more than you expected, and anything that slowed down a little bit less than you expected?

So I'll start. We're obviously giving guidance on capital returns over a 3-year period. And as you would expect and is prudent, the company is looking to maintain flexibility in terms of ultimately how do we deliver that surplus capital back to shareholders. So I wouldn't at all call it a shift in policy, I would say the company is just looking to likely give guidance in other areas, maintain flexibility for whatever kind of market conditions and other changes may occur and then again, we will update you as we execute the program.

Trevor, on the phasing H1, H2, I wouldn't say there's anything substantial that's changed. If you look at our underlying momentum of consumer uptake across North America, Latin America across our regions, it's fairly consistent. We had some things which we flagged to you, there was some phasing in India, where we were lapping, the first half was stronger than the second half. There were some things in innovation phasing. But as of now, we're not seeing a shift in trend, consumer demand trend of any significance in the second half versus the first half.

(Operator Instructions) And our next question comes from Sanjeet Aujla from Crédit Suisse.

A couple of questions for me, please. Firstly, a lot of investment seems to be going into North American and Europe, and part of that seems to be coming at the expense of some of your emerging markets. And just wondering for how long can you keep sustaining that? Is there is a risk that you might be under-investing in some of the emerging markets or are you just investing more efficiently there?

Yes. I can take that. Our investment levels in the emerging markets are at the appropriate levels. We have the same discipline of catalyst and looking at the effectiveness of our spend. As we've gone through the last couple of years, we've clearly found a lot of efficiency in our marketing spend. We are buying point-of-sale material better. We rationalized the agencies, nonworking spend has come down. So the effectiveness of our dollars has gone a long way, so while we're increasing our overall reinvestment rate, there is a big effect in the surge as well. And then we are responding to volatility right. When you have markets that are in tough shape like in certain parts of Africa and parts of Asia, we are adjusting our spend accordingly. But our core brands and our core markets are being invested in strongly, and so I don't see this as a reallocation of advertising and marketing spend from emerging to developed. We look to optimize it for every market and we want to sustain healthy growth across our emerging markets as well.

Got it. And you talked about benign volatility over the last year in emerging markets, and that's unlikely to repeat. Which markets might you be most concerned about as you look out over the next year?

I wish I knew. If you look at the history, and again, this is one of the strengths of the company, right, we had a very diverse footprint of geographies across the emerging markets. So all I'm signaling is that even in the year we've completed, we've had some tough markets like Brazil, Thailand, Russia, Nigeria and -- but in the scheme of things, we just want to be in a position that we can handle more volatility. And we don't know where it's going to come from and -- but that's how we manage -- that's really what we want to deliver is consistency through potentially a higher degree of volatility next year. So there's no specific markets that we're calling out at this time, but it's more looking at the total geopolitical and economic situation. If we get more volatility, we want to be able to handle it.

Got it. And just final 1 on the U.S. You seem to be a bit more optimistic on Smirnoff and Cîroc. Can you just talk a little bit about some of the work you're doing there? And how sustainable some of those innovations might be?

Yes. On Smirnoff, I would say, I'm feeling good that the total trademark and franchise in the U.S. is stabilizing and improving slowly. It's a big brand, but we can see the trends on equity, past 4 week consumption, the quality credentials are all moving in the right direction. We have -- innovation is an element that we're looking to this year with the 0 sugar infusions line on Smirnoff going into the marketplace. It's too early to call, it's only been in a few weeks. But the base business is in a healthier shape. And so I expect Smirnoff to continue to slowly improve from there. Cîroc is still challenged and Cîroc, we have the flavor dependence and reliance makes the brand a little more volatile. So I wouldn't -- I'll say Cîroc is going to take us a few more years to really get to a more stable resilient position. And then, Ketel One, we're really happy about. So there the growth is 10%. It's doing really well. Botanicals and the base business are both in healthier shape. So overall, vodka has done well. Cîroc, more to do and will take time.

Our next question today comes from Fernando Ferreira from Bank of America.

A few questions for me, please. First one, on fiscal '20, you've been lapping some incredible successful launches, right, so could you comment on how is the innovation pipeline looking for fiscal '20 and beyond? And also, do you see continued run rate in some of those successful launches of last year? And then second question, I'm curious on your views on the Gin category, right, given how solid it was in fiscal '19. If the Gin momentum in GB in Spain continues to slow down, do you see room for the category to maintain a solid performance in Gordon and Tanqueray to continue to do well at a group level?

Sure. Fernando, on the first one, on innovations, one of the things I feel really good about is the sustainability of multiyear growth on innovation that's coming through now in a far better quality way globally. So the quality -- our innovation is really capability and our pipelines and how we're executing and getting sustained growth is really very huge step up. You look at brands like Crown Royal Regal Apple, which is entering its 5th year and is still having really strong growth. And so as we look at next year, yes, we are lapping a very strong year, but we've also got a strong pipeline. And many of the things we've launched, we expect to continue to grow and we're backing them and putting the support behind them. So I feel good about the fiscal '20 innovation pipeline. It won't necessarily be bigger than last year, but in total, we will see sustained growth, multiyear growth on products we've launched last year and the year before last et cetera. So feeling good about that.

On the Gin category, I mean, in part you've got the law of large numbers in some of the big Gin markets in Europe

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down a bit, but there's still we see the category as very healthy and we continue to see good growth momentum in Europe. But what's really interesting is we're seeing the Gin momentum pick up significantly in many more markets around the world. I alluded to that earlier and we really want to get behind that. And so places like South Africa, Mexico, Australia, Brazil, more places in Latin America. So the overall trends for the category we remain very confident about that we will continue to see good growth. And both Gordon's and Tanqueray are really well positioned to benefit and indeed lead that growth in many of these markets.

(Operator Instructions) Our next question today comes from Olivier Nicolai from Morgan Stanley.

Three questions on my side. I mean, you alluded to it earlier but the guidelines for full year '20 obviously is implying a slowdown compared to the very strong performance you had in 2019. Now in which regions or category do you expect that slowdown to be a bit more pronounced? And do you have any evidence of that by looking at actual trends or do you just prefer to be, I guess, a bit conservative at this stage of the year? That is the first question. You just commented on Gin, but I have a follow up actually on this. Very strong growth in Brazil in Gin, well, you highlighted Gin. What has been the trigger behind this surge in demand in the market, which is not truly traditionally a Gin market and you believe you could see a favored demand in the rest of LATAM, and just lastly, for Kathy, regarding the use of cash, just remind us of your M&A criteria and is there any specific category or region that you are keen to strengthen?

I'll take the first 2. Yes, so on the phase of -- as we said, we did, in guiding on our top line for this fiscal year, fiscal '20, it's less about specific regions or markets accelerating. In total, we want just the ability to make sure we can handle as I mentioned potentially a little more volatility in the world. And we also had innovation, which I talked about earlier, it was very big this year and we will be lapping a bigger innovation number. But I wouldn't point to any particular regions having a big shift in trend that is driving that. And again, this is our approach to managing performance in the company to deliver consistency, which is really what we're about, is part of this is creating the capacity for us to move quickly to handle things that turn on us on the external environment. And that's partly behind our philosophy of how we're guiding on this consistent mid-single-digit growth going forward.

On Gin, we are seeing it pick up. It's a similar trend what is happening. And in Brazil for example, it is the early evening occasion, it is in the on-trade. It's -- you see occasions where young people would have all been drinking beer and now in that group, you will see a couple of people drinking beautiful Tanqueray & Tonics and a lot of the growth is coming out of beer in where these occasions are developing. And our business there has more than doubled than the last year, and so we're very excited about this trend. And we want to keep building upon it as I mentioned in many markets outside of Europe. But it is drawing some wine and beer and other occasions, in the early evening occasion where, which is how it started in Spain and then moved on across Europe as well. So it's fairly similar dynamic at work here.

And then, Olivier, just in terms of kind of M&A, obviously, we wouldn't talk about where we might be targeting in advance of actually doing any transactions. The markets for M&A I would say is quite competitive, and so we wouldn't be looking to give any competitors any sort of edge in terms of what we might be thinking. But you should understand that we're very inquisitive, right. So we would look at a lot of things and we will look to acquire things that are both a great fit with our portfolio that helps to position us into new occasions or into areas that today either across categories or geographies or price points, we under-index and I would certainly point you to the acquisition of Casamigos as being kind of very spot on in terms of consumer backed and looking to make acquisitions in areas where we think we're just not fully participating in kind of the growth opportunity that's there. And that's obviously an acquisition that we're really pleased with, how we have under-indexed in tequila and specifically we're looking for something in super premium tequila that could sit alongside of Don Julio, which is also very well performing, both of those brands are very well performing for us and tequila was up 29% in the last fiscal. So we'll continue to be very active in looking, and then the other thing I would say is, we're obviously also organically launching new brands of our own, and 1 that I would point to that we've just launched recently is an Italian premium Gin, Villa Ascenti, and so that's something else that we'll continue to append to our overall portfolio of brands.

And then the last thing I would just refer back to Ivan in terms of, we need to both be investing in the big brands in our portfolio today, but also seeding those investments for the future to make sure that our portfolio continues to be very strong as we look forward over the next 5- to 10-year period. And so we're doing just that and that's part of the reason that we point in fiscal '20 to continuing to look to upweight our marketing.

Our next question today comes from Laurence Whyatt from Barclays.

Firstly, on the margins, you had a significant improvement in the margins over the past 3 years, and it almost doubled what the initial margin target was. How do you know that you have not cut the margins too much? We've had a number of other consumer companies that made that realization only having to reinvest back into the business. Secondly, it's a bit of a follow on to Fernando's question. On innovation, the scotch markets you've highlighted have all benefited significantly from the Johnnie Walker, White Walker line extension. Whilst I appreciate that you want to get multiyear growth out of your innovations with the end of the Game of Thrones TV series. Can you still continue to be able to grow that particular product? And then finally, on the Captain Morgan's brand, you mentioned in the U.S. you need to do more to get that brand out of decline. Could you let us know what sort of plans you have for the Captain Morgan brand, is that just innovation or is there -- or marketing or what are you looking to do there?

Sure. Kathy, why don't you take the first and I'll take the next one.

Sure. I'm happy to talk about margins. I think it's important that you step back and think about the sustainable model that Diageo was trying to drive. We talk about everyday efficiency and driving that, that really gives us kind of the fuel for growth to smartly invest back into our brands, into technology, into consumer experiences, which then enables us to drive kind of consistent top line quality growth. And if you look at what we've done over the last 3-year period, over the last 2 years, our marketing investment rate has gone up by 50 basis points, and over this 3-year period I'll call it roughly 30 basis points.

So unlike I would say some other companies within CPG we have not at all been looking to, I'd say kind of harvest or shrink A&P and marketing investment. Kind of quite the opposite. We see great opportunities to invest in the business and we're getting smarter and smarter about those investments because we've got much better data and information to tell us what those investments are going to earn in terms of a return. Both across brands, across our different geographies and within the brands what we would call across different growth drivers, we're able to actually look at even when you get into things like media spend how can we best spread it over the course of the weekend or season et cetera. So I'd say, we're quite smartly targeting that investment and we're absolutely continuing to increase our investment back into the business.

And then, I would just have people recollect that 3 years ago when we started down this journey and we originally gave margin guidance, we talked about the fact that everyday efficiency benefits that we were looking to generate, we were looking to reinvest about 2/3 of that back into the business, and we certainly accomplished that. So we are absolutely looking to manage the business for the long-term, for consistency and stability. And you see that by how we're investing back in the business.

Thanks, Kathy. On innovation in scotch, just a few points. One is, if you -- we were really pleased with scotch performance this year, not just because of innovation, but the core business, our malt business Johnnie Walker core, I mean, Blue Label was up strongly, Buchanan's was in stronger shape, gin -- our brand Old Parr in Latin America is doing much better. So scotch is stronger. Now we clearly -- the team has been on to this for a long time, how do you lap White Walker. And so we've got a strong pipeline of innovation in scotch for fiscal '20. And what the White Walker innovation has done is recruited new consumers into Johnnie Walker and made Johnnie Walker cooler. So the equity measures have moved.

And you will see in our marketing on Johnnie Walker, which I'm really excited about as we roll out in fiscal '20, we've got some very exciting brand building and marketing in Johnnie Walker coming up. So I believe we will, in total scotch and on Johnnie Walker, will be able to continue and sustain the momentum we enjoyed this year where scotch grew 6% and Johnnie Walker grew 7%.

Captain Morgan is a tougher challenge. The rum category has been challenging for the most part of the past decade. The category is in decline. And in the U.S., we are -- we've got a huge amount of focus on this brand to improve the trajectory. It's a big brand, so it'll take time. But the core direction is to be recruiting against a broader demographic, the multicultural consumer base, in particular. I'm really excited, a few weeks ago we announced a major sponsorship on major league soccer in America where Captain is -- I mean, the whole ambience of what's happening in soccer in the U.S. is fantastic. Very multicultural dynamic, a much more fun environment unlike some other sports that have become way too corporate. Captain stands for fun and we are really -- we're going to be building that brand. It's going to be one of the pillars on MLS in the U.S. We're also updating the marketing and we have some more, I think exciting ideas still at the early stages on innovation.

I just point you to the work we've done on Smirnoff, on Baileys, on Ketel One. In the spirits business, it's not easy to get a quick turnaround, but with the right quality of work and investment, we do believe we can get Captain Morgan into better shape in the U.S. Outside the U.S., the brand is in growth. And I believe we can actually grow it even faster outside the U.S. So the plans for fiscal '20 do have a refreshed approach to marketing and innovation, which we feel good about.

Our next question today comes from Nico Von Stackelberg from Liberum. Apologies, we now have Andrea Pistacchi from Deutsche Bank.

I have two questions please. The first one is on pricing in the U.S. Deirdre, at the Capital Markets Day I think she was saying there some signs of improvement in U.S. pricing. Now when you look at Nielsen though, when you strip out mix, it shows that pricing is still pretty limited or subdued, except maybe, in tequila and I appreciate obviously Nielsen isn't always precise. So how do you feel about the pricing environment in the U.S.? Is it improving at all in your opinion? And then secondly, a question on GB. You had 2 very different sort of halves, H1 very strong, H2 was softer, partly reflecting I think you say in your -- in a press release commercial negotiations following price decisions. So can you say what is happening please in the U.K.? And also how do you feel about the outlook for the U.K. given, I mean what's going on in the country?

Sure, Andrea. On pricing in the U.S., if you look at U.S. CPI, it's running I think 2%, 2.1%. And spirits is running about 0.8%. If you look across Nielsen and NABCA and I do expect the U.S. spirits pricing environment to get better slowly. And we are clearly depending on the categories and tequila and whiskey, in our high-end brands we're getting priced, then you've got categories like rum and vodka, which are much more competitive and tougher. But I would expect gradual improvement over the next few years in pricing in the U.S. spirits environment and that -- so that would be my comment on U.S. pricing.

And then overall, I think if we look at GB, we have been looking to improve our overall approach with regard to net revenue management. And the pricing actions in GB were all about us looking to cover more of inflation, right, and we're looking to do that in more places across the globe to set us up for the kind of quality growth going forward. So I say as we look at, I'll call it offtake in GB, that continues to look strong, and we would expect our results in GB to improve over time relative to what we saw in the second half. But on a full year basis, GB was still up 4%, so we felt pretty good about the performance there. Gin continuing to be quite strong still in GB.

Guinness brand performance. Guinness brand is in really good shape in GB, and continues to do very well.

So the weaker sort of second half is much more reflection of these commercial actions around price increases rather than a sort of softening consumer environment right?

That's broadly correct. And we're not seeing any signs to your question about the current environment in GB. There are some channel shifts in the last few months. We are seeing the on-trade is strong for us, a little more weakness in the off-trade, but I'd say nothing major overall owing to a big change in trend.

We now have Nico Von Stackelberg from Liberum.

Quick question on your growth rate for Gin in Spain. What was it and how did it compare to the industry? Secondly, there's a lot of growth of flavored gins right now and that led to flavor fatigue in the vodka category. Do you think that's a fair comparison for Gin? Why or why not? Then just a quick one for scotch. Are you guys guiding for growth in your scotch portfolio for FY '20? And then finally, last one is for Kathy. Kathy, I'm still intrigued by the fact that interest income was 2, 3-2 on average cash of 903, that's 25% and some change, which is 7% of your earnings. So I appreciate a lot of the cash is sort of in emerging markets but what's the sort of real rate on your cash and what's your ability to get the cash if you needed it, is it easy to repatriate if you need to do so?

Okay. Why don't I start with the last question and then we will kind of go back up to the beginning for you. So the price in the press release that you're looking for our interest income in, it also reflects kind of slop gains. And so the slop gains makes the interest income look outsized, hence your calculation of 25%, which I would just loosely say is not the return that we get on actual cash sitting in bank accounts across the globe. So overall, I would say, we definitely earn a little bit higher interest rate on cash because more cash fits in emerging markets than it does in developed markets. But we have quite good processes for how we extract cash out of emerging markets over time. We don't have any significant trapped cash anywhere. So hopefully, that addresses your question. So then I think we'll come back a bit but just kind of questions about Gin overall and what's happening in Iberia.

Yes. So the Gin business grew nicely in Iberia, mid-single-digit for us. To your question on flavors, we do not see, and again, we are very careful about how we think about flavor proliferation and our goal in line extension is very much to recruit new consumers, not to trade existing consumers within the franchise. And the terrific success we had with Gordon’s Pink if you look at what that has done, it has really as I talked about earlier brought in consumers from outside the Gin, indeed outside the spirits category into the spirits occasion in the early evening. And the taste profile and the color and the deliciousness of the drink has been drawing particularly in the on-trade. It's been an amazing success. We don't intend to do multiple flavor proliferation in the Gin category. On Tanqueray we're being very disciplined. Tanqueray Sevilla which is also off to a strong positive start and Tanqueray Rangpur are 2 of our core offerings. It's generating more interest. It's offering consumers more approachable, refreshing drinks. And if you went back to a decade to the proliferation in vodka, it was overdone, and it was all trading within vodka. What we're doing in Gin is actually still there's a lot to go after to bring in new consumers into the category. By the way, on Spain, we are gaining share, but the Gin category is plateauing. So the overall Gin growth category has slowed down, but we are gaining share with Tanqueray and Gordon's.

And then I think the last question that you asked was just about it was just about scotch kind of overall and how are we thinking about scotch in fiscal '20. So I would just start with -- we don't specifically give guidance on particular categories or particular brands in a given year. Scotch is obviously 25% of Diageo's top line, and so yes, we expect that scotch is going to be in growth next year.

(Operator Instructions) And the next question comes from Edward Mundy from Jefferies.

A couple for me. First is on North America, ready-to-drink growth has been quite strong in fiscal '19. The category seems to still have quite good momentum. How do you see your performance over fiscal '20 with the like of Smirnoff Spiked Seltzer and ICE Smash? And then the second is a theoretical question, coming back to sort of volatility. I appreciate you don't have a crystal ball on potential tariffs, but is there anything you're able to share at this stage on what the potential growth cost could be if there are higher tariffs on some of the European imported spirits into the U.S. Perhaps commensurate as what happened to American whiskey into Europe? And are you still able to print a 5 to 7 organic EBIT number if those tariffs dematerialize and then I was wondering if you're able to share how do you think about either swallowing the cost of those tariffs or passing them on by giving the importance of trying to get scotch going within the U.S.?

Sure, Ed. I'll handle tariffs and you can -- I'll take both quickly. RTD, the Seltzer phenomenon is extraordinary in the U.S. And we are riding it and benefiting as you can see, in our RTD profile. I think my direction to the team is, don't get caught up in it, right. We don't know when these things turn. And so we're much equally focused on building our beer business in a very solid way there. And I'm encouraged by what we're seeing in terms of consumer trends and equity shifts on Guinness. So we're riding the RTD trend, but we're certainly not counting on it being a long-term sustained trend and we really don't have an ability to predict that, but we've seen the cycles of the past 20 years, so I am cautious on it. On volatility and tariffs, let's say, first it's too early to see how this aerospace dispute will play out. A lot needs to happen in the next few weeks and months. We obviously have a set of scenarios around various assumptions. I would say we will not be immune. There will be a short-term impact if tariffs happen and I'd prefer at this stage not to discuss the impacts of them. Clearly, we're tracking the space and we'll handle it and communicate it as and when things happen. But the ideal strength again is we have a broad base of business, right. Our U.S. business is very diversified in terms of where our products come from in the U.S. including a lot of it locally sourced. And we do have good experience in managing volatility and that's part of what I alluded to in my earlier comments that's what we want to make this company strong and ability to handle some of the things that may come our way in any particular year. So that's what I have to say on the tariff front.

And Ivan, I don't know if I can sort of push you further on that, I mean some of the back-of-the-envelope maths I have done suggest a potential growth impact of maybe GBP 40 million or 1% of your EBIT. If that was to materialize, you would still be able to deliver growth than your medium term guidance rate of 5%. Is that a fair assumption? Could you be able to comment on that?

I think, you ran some numbers. I won't comment on because if it happens Ed, I mean we are ready and we've done our modeling. But I'd say there's still a lot of developments that need to happen in the next few weeks and months. And our overall guidance does in fact reflect the fact that we want to be prepared for little more volatility in the world.

Ladies and gentlemen, we have no further questions at this time. I would like to hand back over to your host for any closing remarks. Thank you.

Well thanks, everyone. Appreciate your interest in the company. Kathy and I will be out in the next week and look forward to seeing and meeting many of you tomorrow and next week. And have a good summer for the rest of summer. Thank you very much.

Thanks, everyone.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation today. You may now disconnect.