Diageo plc

Good morning and welcome to Diageo's 20 Preliminary Results Investor Q&A call. Your call today will be hosted by Diageo's CEO, Ivan Menezes, and CEO, Cathy Nichols. The question today, please signal by pressing star 1 on your phone keypad. If you're using a speakerphone, please make sure your mission is turned off to allow your signal to reach us. We're now ready to start the call. Mr. Menezes, please go ahead.

Thank you. Good morning, everyone, and welcome to our preliminary results call. I hope you and your families have been staying well through this time. Fiscal 20 was a year of two distinct halves. In the first half, we delivered good, consistent performance with broad-based organic growth across regions, categories, and we had margin expansion. Our second half performance, however, was significantly impacted by the global outbreak of COVID-19, with the peak of the impact occurring in Q4. We adapted quickly and acted decisively to protect our people and our business. We supported our customers, trade partners, and communities. We stayed connected to our consumers and rapidly responded to their changing needs. We reduced expenditure, conserved cash, and raised additional liquidity. The strong foundation we built over the last six years has increased our resilience and agility and smart investment has given us the technology tools to be effective in this environment. Our insights have enabled us to stay close to consumers, and we've continuously refocused our marketing investment to capture opportunities and strengthen brand equity. The US, our largest and most profitable market, has been most resilient. Our trade demand was strong during lockdown, and our tequila and Canadian whiskey brands continue to perform particularly well through the year. Depletions were ahead of shipments, which resulted in a reduction in distributor inventories. In our other regions, we had a much higher on-trade exposure, which meant the impact on our business was more severe. For example, in Europe, around 50% of our sales are normally on-trade, and Africa is a strongly on-trade-oriented region. As these two regions are our largest bear markets, the decline in our beer business was significant during COVID-19. In aggregate, around three quarters of Guinness sales are on trade in the larger Guinness markets in Europe and Africa. The impact of COVID-19 was also disproportionately high for our Scotch category due to its greater exposure to emerging markets and travel retail. Together, they account for over two thirds of our Scotch net sales prior to COVID-19. So across all our markets, we move rapidly to adapt to the reduction in consumer demand caused by COVID-19 in keeping with our disciplined sellout culture. Our decision to take back around 500,000 Guinness kegs from customers demonstrates our commitment to quality. We've also been very disciplined in our working capital management. While the on-trade is gradually reopening in many of our markets, we expect volatility to continue. Given the significant uncertainty around the pace and shape of recovery, we're not providing specific revenue and profit guidance for fiscal 21. We expect organic net revenue in the first half of fiscal 21 to be significantly impacted. However, within Q4 of fiscal 20, we saw sequential improvements. We expect that to continue into fiscal 21 with sequential improvement in the first and second quarter as the on-trade continues to reopen and consumer demand begins to recover. Today, we announced that we're recommending a final dividend in line with fiscal 19, bringing the full-year dividend growth to 2%. This reflects our long-term confidence in the resilience of our business and the robust fundamentals of our industry. As we manage through this period, we're determined to emerge stronger. We are rapidly responding to changing consumer opportunities, investing with agility in marketing and innovation, partnering with our customers to win across all channels, driving efficiencies in cost and cash management, and continuing to do business in the right way from grain to glass. And with that, Cathy and I are ready to take your questions. Let's open the line for questions.

Thank you, sir. We have our first question from Sanjita Aulia from Credit Suisse. Please go ahead.