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Good afternoon, and welcome to Diageo. I'm Sonya Ghobrial, Head of Investor Relations, and I'm delighted to be here with you today. Thank you, everyone, for joining us in person and obviously, we're delighted that we have a number of you online as well. I'm joined today by the executive team and senior leaders, and we're looking forward through the course of the afternoon to take you through our strategy update.

Firstly, I'd like to remind everyone online and those in the hall today, that the discussions today may contain certain forward-looking statements, which may refer to, estimates, plans or expectations. Please refer to today's release for more details, including factors that could lead actual results to materially differ from those forward-looking statements.

With that, I'd like to hand over to our CEO, to Dave Lewis.

Thank you, Sonya. Good afternoon, everyone, and thank you very much for being here. On behalf of the Diageo executive, I'd like to extend a very warm welcome. We're delighted you're here, but it's our responsibility, first and foremost, to make sure you're safe this afternoon. This is not a building that you know. There are no alarms. There are no anything planned. So if you hear a signal, it means that something is happening and you will need to evacuate the building.

In every room, you're going to be in as we move you around the place, there will be someone there with a high-vis if this were to happen, please follow them out of the building. You know not to use the lifts. The escape stairs on either end of the building, with the escort you out of the building if there were to be, but it's very important that while you're with us, we make sure that you're always safe, okay?

This team, you know in to a large extent, 2 new people that I want to call out. Natalie Bickford, Natalie, where are you? There you go. Natalie joined us from Sanofi as Chief People Officer recently. And this gentleman here hasn't officially joined us. But Sujay, where are you? There we go. Sujay is joining us from Procter & Gamble on the 15th of August, and will be the President in our Asia Pacific region. So this is the Diageo exec.I'm not going to ask either of those guys to speak to you this afternoon. We'll let them get bedded in a little bit more before we do.

But you are going to hear from most of the other people in the course of this afternoon. What are we going to share with you? We're going to share with you a plan that has two very clear focus. A focus on spirits, including RTDs, we see that as one market. We see it as a very robust category, and we think we can grow share in that growing category. And we're going to continue the double-digit growth that we have on Guinness today, and we'll share with you the plans we have to continue that growth and indeed gain more share.

The plan we'll share with you, we'll talk about how we retain -- very much retain the premiumization capability we have that has created so much value historically, but we are going to broaden and be a little bit more active with our portfolio and allow us to serve more consumers on more occasions as we become more active in category strategies as opposed to just brand-led strategies. You're going to see some of those this afternoon.

We're really clear that we have a turnaround to execute in North America, but we need to do that whilst we continue to accelerate the growth elsewhere in the world. And I think very importantly for investors, the way that we're going about this turnaround for Diageo doesn't require us to reset the profit in order to support the plan.

You've heard me talk about the need for us to develop a more agile, more competitive operating framework. We've been working hard on that. It's also significantly more cost-effective than where we are today. And we're investing $1.2 billion of restructuring, $1.1 billion of that in the operating framework work and another $100 million in the supply chain. We've charged $752 million of that in F '26. Cash goes out in '27 and the balance will be spent and committed in '27. That investment saves us $1 billion, right? About $850 million of that comes from the operating framework work and $150 million comes from the supply chain. And the intention is that I'm going to invest that back into advancing some innovation, selectively improving our competitiveness and indeed protecting the underlying profitability I talked about.

I will come back to talk about what I mean by investing in competitiveness because it seems that everybody thinks that's just price, it's not just price. In fact, it's actually quite a lot of not price activity. You'll see it particularly in the North American plan that John will share with you, but I'm sure we can debate that later.

This plan, including the restructuring charge, generates $8 billion of cash over that 3-year period. And with the sale of EABL and the conclusion of the RCB deal, we anticipate the leverage will drop into the middle of the range in '27. And if we weren't to change anything, this is obviously a hypothetical that would allow us to be down at 2, i.e., below our current guidance by '29. That's whilst we increased the CapEx to $1.25 billion a year for 3 years. and we'll share with you how we're going to spend that.

We retain our capital allocation priorities. And as we lower leverage, the Board can then explore whether to change the dividend policy or indeed to think about share buybacks. The other thing we'd like to be really clear with you about is the plan that we're sharing with you today is an organic turnaround, very aware of lots of speculation, lots of things that people write in the marketplace. Being clear, we're not buying, we're not selling. This is an organic turnaround and we're basically, we have what we need to turn the business around.

Finally, I'll share with you right at the end how we simplified the incentive programs inside Diageo to align it to that investment case. So that's what you're going to see from me and the team this afternoon. I think the summary of it is we built a plan we believe in. We're really clear we've got an awful lot of work to do, but we're very confident as we do that work that we can return this business to a very strong, very consistent creator of shareholder value.

So how are we going to share that plan with you? This is the agenda. It starts with me. I'm afraid you've got me for a little while. I'm going to tell you what we've been doing over the last 6 months. particularly as it relates to strategy and particularly as it relates to the operating framework behind that restructuring plan. But then the rest of the day, this is not a -- I remember somebody telling me about previous Diageo Capital Markets Day. This is not a marketing show and tell. In fact, you're going to see very little in terms of pure marketing sizzle real from us today. We've tried to construct the agenda through the lens of the investment thesis to try and address the questions that you ask us and other commentators comment on.

So we'll start with the market opportunity and Hannah, our strategy lead, will share with you our thinking on how we see this market evolving and the assumptions that we're making about each of the regions over the next 3 years. And then we'll also move to how we think we can win. And that really is the category strategy. So Cristina will share with you a couple. And we'll share with you a couple because we've only got time to share with you a couple, and we'll share with you a couple, which is with enough detail so you understand what we're doing, but not enough detail that we give anything competitively away.

So just be aware, we'll always try and walk that line that we don't give too much away, but whiskey, tequila, RTDs. Then you're going to get a different sort of Guinness presentation. And Grainne has got massive amount of marketing she could share with you. That's not what she's going to share with you. We're going to share with you the investment plan on Guinness and how it is we're going to drive capacity against that growth agenda.

We'll then take all of that work and then we'll go to two regions. John been in North America 3 months. He's going to share with you quite candidly what he's found and what we need to do. It's fair to say our North American business has been underperforming for quite a while. The growth of tequila, covered up some of that. We now need to face into some of the realities. And John will share with you exactly what we're thinking, what we're doing and how we're going to phase ourselves as we turn around the North American business.

I've asked Alvaro to share with you where we are in Latin America because actually of all of the regions in Diageo, the one that's most advanced down the category lens that's most a reflection of where we're going for the group in total is actually in Latin America. So some really good and very clear examples of the direction of travel in what it is Alvaro has been leading for in Latin America.

Ewan will then -- the other question you've asked of me many times is the deployment of capital inside Diageo, and Ewan will take you through how it is not only we're going to deploy that $1.25 billion of CapEx, he will also talk to you about working capital, mature inventory, and we'll also finish by touching on how that supports customer service. We'll let Nik bring that all together in terms of the financial algorithm, and I'll pop back up right at the end to give you one slide on the incentive program and how we're changing that.

We'll then have the opportunity for Q&As in this room. And then we're going to go downstairs. We've got an innovation showcase for you for half an hour by which stage it will be transformed up here, and we'll invite you back up here for a drink all the time able to answer any and all of your questions.

Big thing for me, my team is we've got to be bang on time because we've got people on the webcast and we need to make sure that we hit. If there is any time in the sessions, we'll take questions but only up to the limit of the time. Otherwise, we'll do it at the end of the day. Okay? Cool.

We've been busy. We have been busy. It's been a busy 6 months. We shared some of this with you before. We started from a very objective review through the lens of multiple stakeholders how we were performing. From a market point of view, from a competitive point of view, a very extensive piece of work. We then, as an exec team, looked at 5 strategic alternatives to how we would develop Diageo going forward. evaluated all of them and I made one clear recommendation, and that's the recommendation we're going to share with you today.

We then worked a lot on what does that mean in terms of a competitive operating framework. And we started some active market testing. As we were thinking about the different strategies, we actually started testing some things, and I've asked Cristina to give you a little update on how some of those testing has worked because we've been testing our own strategy as we develop it to see whether it's as effective as we would want it to be.

That allowed us in April, and you've got 2 or 3 of our Board members, the Chair, Susan as SID and Karen, who are here today, and you can ask them. We took the recommendation to the Board in April. They bought into the proposal, including that operating framework I've talked to you about. And actually from; that, we appointed the leadership team. So I know people today are talking about announcements going forward.

The thing I want to land with you is we're quite a long way down the track in terms of the changes that we're talking about. So the leadership team, i.e., below the exec was appointed in May. Those -- that team of 90 came together in 20 and 21st in Edinburgh. and we shared with them all the work that we had done, all the case for change, all the analysis we've done so to recruit them to what it was we're doing together. And then together, we designed the last bit of the operating framework and through June all of the operating framework was cascaded through the organization, including the budget guidelines that we've given. And so by the 1st of July, important date for us, we not only had a reset of the strategy, we had targets. We had the operating framework live, okay? So where we are today, September 1, particularly in the go-to-market organizations, we're about 90% of the way implemented.

Now all businesses you cover will have their own frameworks for this. I'm going to articulate it through this lens. You'll see this chart a lot in Diageo going forward. How do we organize purpose, strategy, behavior, how do we operate as a complete entity and the culture that comes as a result of all of that. So I'm going to do this very quickly. It's something that's very dear to my heart as a person leading a business the purpose and the way we set the magnetic north of the organization is massively important to me and very important in terms of how I build the right culture.

Some of investors love to have that conversation with me. Some not so much, okay? So I'm going to go for the not so much. And if you want to talk to me about it afterwards, I would love to. This is the purpose of Diageo as I articulated a number of years ago. It served the business really very well. But there was quite a lot of commentary as we did this. We consulted with a huge amount of people as we did this inside the business.

And there was a feeling that this has served its purpose, but it actually wasn't a fair reflection of who we were. And actually now was perhaps the time to move on. And actually, in terms of every day, everywhere, is that where we want to be in terms of responsible going forward. And while celebration is important in our category, it's only 40% of the occasions that people actually engage with our category and therefore, will be somehow limiting ourselves.

So the other thing I should say to you is I don't -- we don't want to -- as a team, we don't want a purpose that becomes a strap line for the business. We want a purpose that articulates why this business exists and something that allows everybody that works here can see how it is they make a contribution to that. Here is the new purpose for Diageo, crafting, iconic drinks, chosen, for life's, moments.

In a good purpose, every word needs to mean something. The element of craft, if you're new to this industry, one of the things you appreciate massively just about everywhere is how much care and craft and skill there is. If I go with you and to Scotland and walk all of the capabilities in that it's quite mind-blowing where the craft exists inside Diageo. And if you look at the history of how some of our brands were created craft is very strong in our business. This idea of iconic drinks, very important through the lens of consumers is the drinks. Chosen, yes, i.e., to be asked for by name in a bar but also to be chosen as a partner in customer and all other stakeholders places. For life, not just for celebration, yes, some little moments of joy, but there are other times when people want to enjoy our category. And the moments that matter.

Again, I'm not going to -- it's really important to us. It's important that you know about it. If you want to talk to me any more about it, grab me in the bar later.

Strategically, where do we get to? Look, TBA, is really quite misleading for us. You come to this market a fresh, the fact that we think about all of our targets through the lens of TBA, not appropriate, not appropriate. The 2 categories we're in, full price total spirits, not international spirits or premium spirits, total spirits, full price ladder, including RTDs. That's market #1 for Diageo going forward. premium beer with Guinness market #2. When you get to the analysis of why things are changing in here, it's very different across TBA. TBA doesn't help us. So we're going to be really focused on winning in those 2 places. And it's going to be nonnegotiable across our business that we need to rebuild the capability in the on-trade. It's patchy post-COVID around the world about recovering that -- we don't want to leave that to local market decision-making. We're going to drive it through all of our operations.

Saw this from me before. I talk about it in terms of differentiating competencies. How do we win? Well, relevant brands, you know a lot about brands, but relevant brands means across a price point, not just one part of a price point in competitive category strategies. We've given you some examples. You're going to see some more. But a key enabler of this strategy is the ability to do that.

The second is that we engage with our customers and our channels in a way that, actually, quite frankly, we haven't done before as Diageo. So in how we go to market, how we partner going to market a really key capability that we need to build. And you'll speak to Ewan later, but the need for us to fully integrate our supply chain end-to-end.

Now that might seem obvious to some of you, but if I'm candid, where we started from, really quite a big disconnect between the supply side of the organization and the demand side of the organization a lot of duplication, a lot of waste, a lot of inefficiency. So we need to build these 3 capabilities to be world-class inside Diageo.

The final thing I need to share with you is how do we design deliberately to extract the benefits, the leverage that comes from our scale. We have big for sure, we have very complicated. Every country is different, every process is different, I talked about that in the results. If you want to get operational leverage, we need to design for it. So the operating framework is designed in a way that allows us to simplify and scale. As you know, complexity fails, simplicity scales. We've got to design for that, and you'll see that in the model, I'm going to share with you in a second.

So what have we done? From the 1st of July, there are 23 country or country cluster organizations, go-to-market organizations responsible for the sales and marketing of our brands in those geographies. Every single one of them has this organization design. 1st of January this year, every single organization had their own bespoke design, right? I don't think there's anything particularly unusual about any of those titles. In Diageo, we use commercial for old people like me, that's sales. What is this organization responsible for? Market share performance in those 2 categories I talked to you about and the on-trade reach and capability in their geography.

How are they -- look, how are we looking for their outcome, the sales growth, the operating profit dollars and the free cash flow, 23 go-to-market organizations. 5 regions. Our 5 regions: North America, LAC, EMEA, Africa becomes part of the European group again, India, we break out and APAC is everything in Asia, ex India. Those are the 5 regions going forward. You see here, each region has exactly the same composition, exactly the same roles in each region.

Most of them self-evident. The one you should focus on is the one that says Transformation Director. Each regional business President has one person responsible for driving that consolidation, simplification back office that's going to be such a part of how we build this operating framework going forward. So these guys are resource allocation, capability development and making sure we get that organizational leverage that I talked about earlier. Then we get to the exec. You know this structure. We've got 5 regional President, one Chief Marketing Officer, so on and so forth. Importantly, all of the global business services, including digital and technology as one organization reports into Nik now.

Now I've got one really hard on the eye chart, but it's as simple as I could make it to make the point. So forgive me before I show it. Exec level, regional level, local level. If you think about the capabilities and how we get leverage, if I'm talking about sales and commercial, I've got one vertical, likewise marketing, likewise supply chain. Finance people and transformation. This is where the transformation office comes, People, Global Counsel, CSO. Again, you probably don't need all of this detail. But the most important thing is we've designed it in such a way that the alignment is clear, the responsibility is aligned, the measures are all aligned and the forums are all aligned.

I'll give you a tiny little out Friday afternoon, Cristina and I sat down with the 4 heads of categories, I'll show you in a second, and the 5 regional marketing. So with 10 people in the room, we were able to lay out the brand innovation plan for all regions for the next 3 years over 3 hours. We've never been able to do that in Diageo because up until now, it's been country by country and at [ smorgasbord ] of 1,200 innovation projects is an outcome of the way that we organize ourselves because everybody was pitching for their own individual project.

So I'll give you this a little bit more detail. This is the Diageo marketing under Cristina. There are 4 categories. Those are there at the top. There are 5 regions down the right-hand side. That's the contribution to sales. Interestingly for me, if I have a problem, I don't know, whiskey in Latin America, there are 2 people I need to speak to. And as I say, if I put those 4 people together with those 5 people in Cristina, I got 10 people to run the marketing for Diageo.

We've designed it in a way which allows us to have a real direct accountability, responsibility, but also leverage. We've created one Chief Supply Chain Officer, end-to-end, Ewan. In the past, we had different things in different regions, local supply chain directors. Local now is all about customer service. It's not about running the supply chain, that's with Ewan. He has complete responsibility across the world. Anybody who covers other FMCG players would see that a number of a while ago. but he basically has 5 regional heads that matrix works for all of the functions. With 5 people representing each of the regions, he can deliver the globe.

Likewise, for Nick, 5 finance directors, 1 big global business services, FP&A and control and the finance expertise. Massive simplification, massive reduction, taking out the duplication. People in Diageo told us, we were very, very, very duplicative, very slow, no clear accountability. Actually, when you walk through this with all the people involved in designing it, it's really clear who's responsible for what.

Now this is the bit you might be interested in. So look, that's that organization. And I put the numbers on there because otherwise, you'll get the proportions, and I know you'll be guessing. So the total overheads budget we gave ourselves for the destination of this organization is 10.5% of sales. That would put us in the top 25% of all businesses that operate in this space. If I told you today that it's way north of 14%, it gives you some idea of the change.

If you look at where we deploy the exec level rounds up to 0.2% of that. The regional teams, excluding the Presidents because they sit in my global budget, 0.2%. The majority stays in go-to-market and the majority of the other is global functions, including marketing. So a really clear accountability framework, really clear budget framework.

I said to you before, we're nearly complete, particularly in the go-to-market. I think that whilst that was a destination that we wanted to get to in 2 years' time, I think the regional presidents decided that they would want to go all in one.

So what you see here is the green these changes in go-to-market are complete. They're done, they're behind us. What you see in Europe is the consultation process, the legally binding consultation process, it takes a certain time, we have to go through that. It means no problem we'll do it. It just means that Europe will be slightly later.for us to be able to give the certainty that we want to do to our people.

But I suppose the thing I wanted to point to is whilst this is not something we're announcing we're going to do, this is something that actually quite a lot of it, particularly in the country level is already behind us. Now some of the things to Nik's area, in terms of global business that will take quite some time. There's some tech enablement, there's all that sort of stuff, so that will take a different time. But the go-to-market ones done and we're focused and everybody started the year in a clear way.

Final thing I've got to share with you, and it comes to behaviors. So if you go back to my chart in terms of the triangle, I'm sure my Diageo colleagues won't mind me saying this because we had this conversation. If you look on the left hand side in January, we had different programs in our business, which talked about purpose, ambition, strategy, enablers, outcomes. We had 4 values. We had 3 leadership ambition areas with all the things you can read here.

Again, lots of feedback from our colleagues that this has got really quite complicated. It wasn't clear enough, so on and so forth. Going forward, what we've agreed with everybody you've just seen what I said about the purpose. You've seen what I said about the strategy. We articulate that actually to bring all of that alive, we're going to focus on 3 things, 3 behaviors in the organization: One team, competitiveness and decisiveness.

I could talk at length, you should ask me and the exec as you engage with them over the next while. I think the biggest single one here is team. What this operating framework needs to make it work is we have to behave as a team. Diageo historically has been more fragmented, diffuse, use your language, siloed, some people do, it doesn't really matter. But the exec has to work as a team. I said on my first day in Diageo that I believe that business is a team sport. The exec team need to be truly a team. If I told you that in January, my exec team only physically met twice a year, you'd be surprised. Because we added also diffuse.

This comes back together. Being one team is massively important, and the people that have to demonstrate that most is myself and the exec team in order to demonstrate a completely different set of behaviors going forward. But that's -- we don't get the leverage unless we start specializing and relying on other people to deliver. So you don't have your own solution to every problem and that duplication I talked about before.

A lot of change in 6 months in sort of 23 minutes or so. But that's to bring you up to speed. That's what we've done in terms of an articulation of purpose, strategy, operating framework and the behaviors that are going to bring it alive. We now need to get on and do it. As I said at the start, we've got a lot of work to do. We got a lot of work to do, but we're confident about what we are able to deliver.

So that's it for me. I'm now going to pass you over to Hannah, who will take you through how we're thinking about it. So that's the background. Now it's the investment thesis. We'll start with the market opportunity, 2 sections, Hannah first then Cristina and then we get into some breakouts. Thank you very much.

Thank you, Dave. All right. Good afternoon, everybody. I am going to spend time today on 3 things. First, what are the factors that drive market. Second, how do we think they're going to evolve, and third, what does that then mean for our market growth expectations regionally and globally. But to get us started, I just want to set the context of where we are today.

If you look back over 15 years, and I'm conscious many people have studied this industry for a long time, 3 distinct cycles. We had a long-standing premiumization cycle. There was COVID acceleration and most recently, a consumer reset that's been largely affordability driven. Despite recent pressure, especially in the U.S., spirits, including RTD, has been in long-term growth. Through this period, and especially most recently, RTDs has been a really significant growth contributor which you can actually see quite clearly by the divergence of the 2 spirits lines on the chart. Premium beer also in long-term growth. I'm going to spend most of the time today on spirits, including RTD, given that's the majority of our business.

Question for us isn't, is this market going to grow? We're confident the market is going to grow. Question much more is what's driving it and making sure we take that understanding to inform our strategy and inform our plans. For us, there are 3 fundamental drivers of market growth, demographics, wallets and behaviors. Demographics, put most simply, how many people and who are they?

Just to point of nomenclature, you'll see through the slides, either LPA, LDA, it's legal purchasing age, legal drinking age. If populations grow, it expands the LPA consumer base. As people age, they drink differently. We track both on a market-by-market basis. Wallets, how much money do people have? Alcohol ultimately is a discretionary category. So if you see affordability pressure, you see people getting squeezed, you see discretionary spend come down, alcohol is impacted.

On the other side of this, though, in markets where there's economic growth, emerging middle class, category participation broadens. We see premiumization, we see tailwinds. Again, we track both on a market-by-market basis. We use publicly available macro data, but we'll also get custom pulls to really get under cohort dynamics, especially age and income. On the behavioral side, we study all sorts of different things. The 3 primary things we're looking at, the evolving attitudes to socializing and alcohols role within that growth of GLP-1s and the rise of convenience. We use a range of studies, but we do here have proprietary research, especially against the attitudes to socializing. We field 17 markets twice a year and some of the information from that I'll share with you today.

Let's start with demographics. Without question, demographics are a tailwind. Information on the left panel here is looking by region at go-forward population growth expectations. I'd draw your attention in a moment to the U.S. number at the top. This is forward-looking at 0.5%. This year, forecast to be 0.6%. Interestingly, as recently as 2024, it was 1.2%. That drop is primarily due to net migration. In fact, historically, immigration has been at least a 50 basis point tailwind in the U.S.

So if immigration policy were to be in a different place in the U.S., we would expect that population growth number to be different. The other thing I'd say, looking at the left panel, it's not just is the population growing, are they engaging with our category. Spirits penetration at top across leading markets remains at or above pre-COVID levels. So people are engaged in the category.

What we then look at is well, how are people spending, how are they spending on spirits, how does that change by age. We look at the average and then we look at the age brackets relative to that. And you can see this green corridor here, whereas the elevated spend against spirits ranging from 35 through to 74. Interestingly, if you looked at this for just the whole of alcohol, you'd see it more condensed. That green corridor stops at 64. So we're quite confident from a spirits perspective, as populations do age, we do have that little bit more protection.

Second, there is a lot of conversation at the lower end of the spectrum, and I'm going to talk about Gen-Z in a moment. But interestingly, higher age cohorts, whether you look at the percentage of their spend out of their total expenditure, or if you look at the dollars they're spending, they are spending more on spirits more on alcohol than they used to. So there's increasing spend per age cohort at the high end. We then said, okay, let's make sure we're tracking how the population is going to shift relative to that elevated spend corridor over time.

What we show on the right is the middle 50% of the population of the LPA population. It's the interquartile range for those who like statistics. The dark box is where we are today. The dashed box is where the population will move to by 2029. Punchline being not much actually, not much shift, this moves quite slowly. But if you look where the populations are relative to where they're heading, we feel pretty good about where we're sitting as populations age.

Let's, however, talk for a moment about Gen-Z. The first thing I actually want to call out is in the lead of the slide. we look at LPA plus Gen-Z. And I bring that up because it is important when we're doing the analysis to make sure we cut the right age cohorts, especially in the U.S., quite a lot of data sources will have an under 25 age bracket. And if you just pile that in of itself, it will lead to some technical term wonky math in terms of what you're getting out from the results. So we really do make sure we hone in on the LPA plus consumers.

If we do that, a few things. Firstly, penetration, again, how are Gen-Z engaging with our category relative to general population, whether it's spirits or RTD, we see Gen-Z penetration is higher than general population across a range of markets. We also look at how are they spending what percentage of their total expenditure goes on alcohol compared with other age brackets. U.S. example answer very consistently. We see this in other markets as well. They're not spending once you account for income and expenditure differently than other cohorts. And how are they actually consuming, to look at this, we blend intensity and frequency data. We've looked at 2026, so recent data back to 2023 to compare what's actually been happening. You see in most markets, it has been increasing, so claim consumption is up.

The interesting example here, obviously, is Australia. For those familiar with Australia, high inflationary environment, excise is linked to inflation. And actually, there's a pretty recent excise hike. It's hurting everybody but Gen-Z disproportionately. What we also look at is claims moderation and actually Gen-Z are also claiming to moderate less than other cohorts, especially in the U.S.

So switching gears from demographics into wallets. Without question, the most acute pressure but very definitely more of a developed market phenomena than emerging. So let's talk about the developed markets. What we're seeing, if you look at income versus inflation, quite simply, it hasn't kept pace. For the last 4 years, we've seen income growth lagging inflation growth across markets like U.K., U.S. and Australia. We've also looked at this by cohort. So really dug in to understand what's happening. As many know, low income have been struggling for a while across these markets. They're in monthly deficit. Their incomes don't match what they actually have to pay on regular expenditure. Higher income, a bit more protected but still protecting experiences perhaps within that discretionary spend.

What's really interesting is in the middle bucket, the middle-income consumers. About 12 months ago, those consumers in both the U.S. and GB would have been in surplus. They would have had slightly more money per month coming in and going out. That has flipped in the past 12 months. This is a consumer group that's now very stretched increasingly using debt to protect lifestyle, but they are feeling squeezed. Back in Q1, we actually spent some time out with consumers across a range of markets. And it was really telling in those conversations, hearing the trade-offs people were making about holidays, about socializing trips with friends, even about how they're prioritizing different house improvements versus what they might have done in the past. But what was also really interesting is they were trying to protect their engagement with alcohol.

People were looking for happy hours to make trips to the pub more affordable. They were really looking at small formats, which you'll hear us talk about today, but it was really notable how people were trying to stay in the brands they love, but they were looking for lower smaller format. And interestingly, when they were looking at RTDs, which many were they were comparing to the price in the pub. And relative to a price in the pub or a bar, that RTD was very affordable.

How have things changed since Q1? So I'm going to take you to the right side of the page. Q2 versus Q1, we have some data here about the net intent to spend. How is that changing? Now clearly, not helped by the situation in Iran, this is a U.S. example, but the intent to spend on gasoline way up. But essentials, whichever one you picked, you would see this picture. It's still becoming more and more of the wallet, more and more squeeze. Discretionary, getting squeezed more and more and alcohol is within that bracket.

On the flip side, as I said, emerging markets, different story. Incomes outpacing inflation, solid amount of discretionary spend. And again, when we did interviews with those consumers, it felt like a very, very different world. So if that's where we are. I'm sure the question is, okay, developed markets, especially U.S., when is this going to get better? So I sadly don't have a crystal ball, but knowing that within the U.S., it's spirits x RTDs, that's really the segment that's been challenged. We dug in back through 25 years of data to figure out what patterns could we see? What was it that had greatest correlation across different factors. And what we actually found is if you look at that U.S. spirits volume year-on-year changes in that U.S. spirits volume, it's quite highly correlated with consumer sentiment. We had about a 40 -- 0.4 R squared.

If you look at real value year-on-year growth, so really then you're getting volume, but you're also capturing price mix. We're capturing mix, stripping out inflation, even higher R squared. So there is a linkage or historically for sure, has been a linkage between sentiment and what's been driving growth of volume and mix in the U.S. Now timing, of course, is then the uncertain question about, well, when is this going to come back?

Macros need to come back for sure. But as many of you know, there is also currently a dislocation in the U.S. between macros and sentiment. There's other factors, geopolitical, domestic policy and frankly, the fact that consumers just don't like inflation, that's all compounding. But we would expect if historic correlation does hold true that as these consumer sentiment pieces come back, we would start to see more volume and value growth come back into the U.S. We're not sitting around waiting for it, John will talk to you more about how we're planning to compete going forward. but this is a relationship we've seen hold true.

Okay. I'm going to gears to behaviors. While the numbers do vary by market, we are definitely seeing consumers telling us they are claiming to drink less. A couple of things I'd call out though. One, that isn't necessarily new news that has been happening for a while. And second, what consumers tell us isn't always what they do. So this is one of those places actually where the proprietary research we have is very helpful to get underneath a little bit more of what has been going on. The middle panel is when we've asked consumers, okay, so why are you moderating? What is it that's causing the behavior?

And without question, health and wellness-related concerns are an issue. They're across an issue across all the markets where we talk to the consumer. But interestingly, financial considerations also come up a lot as well. In the U.S., 26% of consumers are citing financial considerations. In GB and Australia, it's as high as 34%. The other thing for the U.S. is probably worth dwelling on for a moment. Many of you may well know, have seen some of the Gallup studies. They actually ask all sorts of interesting questions back for decades. So if you've ever got a spare moment worth a look, But the one we track a lot is around perception to alcohol.

And there's a question in there about whether you think it's good for you, the same for you, bad for you. That hit an inflection point in 2015, and actually starkly started to go, people thinking it's worse. Between 2015 and 2021, spirits per caps went up, RTD per caps went up. So even though consumers may have been feeling of perceiving alcohol as being worse for them, there was still a significant growth in the industry.

The other thing we use our research for is to understand what are people's moderation strategies. And interestingly, people aren't disengaging with the category. They are using things within our category, our brands to actually still go out and socialize. It might be 0-0. It might lower ABV, I talked about smaller formats, RTDs. These are all things that consumers are looking to as ways to moderate if they do want to drink less. And clearly, as an industry leader, we have an opportunity to lead, shape and provide that choice for consumers.

Let's talk for a moment on GLP-1s because that's a question that we get a lot and rightly so. Firstly, adoption. You're probably tracking this as much as we are, but data is much better in the U.S. We know around 10% to 12% today penetration. Expectation is that goes up somewhere to 20% to 25% by 2029.

Europe, Rest of World, the data is a little bit harder to come by. But we would assume per the U.S. that it will grow over the course of the plan period. Perhaps more important than adoption, though is behavior. What are we seeing? So to get underneath this, we use numerator data, which is purchased panel data, it's 100,000 households. The data we have here is across 4 waves from January '25 through January '26.

And what does that minus 2% mean? That minus 2% represents the difference between people who were on GLP-1s and people who weren't. People on GLP-1s spent 2% less spirits than the people who weren't on GLP-1. That corresponds to the 4% on beer, the 5% on wine. But I think to understand this one, it's also helpful to take an edge case.

So humor me for a moment, but assume 100% of the population went on to GLP-1s in the U.S. tomorrow. That would mean, all those people spent 2% less than they do today. But that is a onetime level effect doesn't compound. Realistically, one number I'm definitely confident today is it will not be 100% of people in the U.S. on GLP-1s tomorrow. In fact, it's already 10%. And over the planned period, it's potentially an incremental 15% if adoption goes from 10% to 25%. If the impact stays around that minus 2%, that is a manageable headwind.

Now of course, we monitor this very closely, but there are some more qualitative factors from all the research out there that also gives us confidence that we think it may well stay as a fairly muted impact for spirits. First, people are still socializing. At least 50% of people on GLP-1s still go to the pub or a bar at least once a week. People are protecting special occasions, and we know spirit's over-indexes in special occasions. People also tend to be pulling out the more habitual boredom snacking, eating and drinking. That's not where our brands and categories play.

And I think interestingly, just from a psyche point of view, people are sometimes creating occasions to go out. They want to showcase their progress. So there is still a socializing environment. And when they do go out, unsurprisingly, perhaps they're looking for lower calorie, they're looking for lower volume, especially if they're having some of the side effects that people report. And RTDs actually also do very well because people are looking for control.

So speaking of RTDs, let's spend a moment on convenience. What we've seen, this is actually looking back 10 years in the U.S. at occasions. It won't be a surprise to anybody. This growth of the third space. We talk about it a lot, but it has actually gone up 3x in the U.S. in terms of number of occasions. And that means alcohol is not necessarily the center of the occasion the same way as it would have been if you've gone to the pub. But it doesn't mean people don't want to drink.

They just need a format that's accessible, which is RTDs. Unsurprisingly, therefore, we're seeing RTD per capita growth significantly across many regions and RTD as a share of total spirits remains pretty low. And even in markets like the U.S. where it is more penetrated, we all know that's a segment that's still growing strongly. So we think convenience will be a persistent tailwind both to volume and to price mix.

So stepping back across the trends, demographics, tailwind. Wallets, we do think significant near-term pressure in developed markets, emerging markets, it's actually a tailwind. And behaviors while there are some challenges, we also see significant opportunity. What I'm going to do now is switch gears and say, okay, what does that mean for what we're expecting market? And I want to be really clear, market, not Diageo, market growth to be by region over the next 3 years.

So let's start with North America. Without question, North America will remain a challenging region through the next 3 years. Over the plan period, we have -- I did not press anything, and it just scooter to India. If someone could pull it back or I can do it?

Okay. Three-year growth -- value growth for the U.S., we're expecting to be minus 2% to 0. While there is some behavioral pressure, affordability is the predominant pressure. As we talked about, we see correlation with consumer confidence and volume and value. If the consumer confidence piece picks back up, we would expect to see a comeback come through faster.

Equally, if the comeback in confidence is also associated or there's a simultaneous change in immigration policy to the data I shared earlier, we'd expect that to be an additional tailwind. Especially given we also know the Hispanic community in the U.S. right now is not socializing as much as they were. Irrespective of sentiment and population, we expect RTDs to be a significant tailwind in driving both volume and price mix. We're expecting the market in North America to remain soft and challenged in fiscal '27 and there'll be slow and gradual improvement from there. John will share shortly how we're going to play in that market.

EMEA, actually a tale of 3 EMEAs. It nets out to a plus 2% to 4% on value growth. GB, we expect to follow much more of a U.S. trajectory, although that come back is much more hard dollars in wallet than it is sentiment, developed Europe per caps have been soft for over a decade, actually. So it's much more of a price/mix driven story anyway. As affordability comes back, we would expect to see getting back to flat or slightly positive growth in developed Europe. The growth story here is emerging EMEA, so both the Middle East and Africa, where there's population growth, economic development and emerging middle class.

APAC, the market. We are expecting a return to modest growth over the plan period. The wildcard here is really China. China, excluding Chinese white spirits, all these numbers here, excluding Chinese white spirits, has actually been down double digit in the last 2 years. So that's going to take some time to recover. But the rest of the region remains pretty resilient. And even Australia, where, as I said earlier, inflation and economic isn't necessarily great immigration remains very positive.

LAC, very strong growth opportunity. We're forecasting the market at 4% to 6% and always some consumer wallet volatility in LAC but we see very strong fundamentals: population growth, economic development driving category participation, strong engagement in spirits, strong tailwind and RTD. The growth, however, will be largely price/mix. There's a huge amount of local spirit penetration in South America. So whether it's cachaça in Brazil, aguardiente in Colombia, local rums, et cetera, we're expecting trade out of local spirits, hence, volume itself is flat, price/mix driving the growth.

India, another very strong growth story from a market perspective, again, a plus 4% to 6% over the plan period, very similar reasons around economic development and population growth. And also, of course, a very strong and buoyant whiskey market, which will hopefully be further supported by the tariff reduction.

If I pull all that together, regionally, what we're seeing is still a bit of divergence. North America will be a drag as will China within APAC, but strong emerging market growth. I'm going to spend just a moment on premium beer because that is our reference market for Guinness. However, as we've talked to you guys a lot about, we play pretty uniquely in Guinness, so we haven't built proprietary models to take forecast industry. We're taking IWSR and using that to inform what we think there's some range by region, but overall, globally, a value of plus 1% to plus 3%. But clearly, with Guinness, we'd expect to outbeat that significantly.

So if I pull it all back to where we started, we see strong growth across the portfolio where we compete. As we just said, premium beer, we're expecting to be plus 1% to 3% over the plan period for the market. Spirits, including RTDs, also plus 1% to 3%. Consumers continue to engage with our category across markets, we continue to expect and see growth. We plan to beat it. I'm going to pass to Cristina, who's going to tell you how we're going to do exactly that.

Thank you, Hannah. And good afternoon, everybody, and to those of you on the online as well. I'm going to now introduce you to how we see our category strategies, which is essentially all about how we will win. There's a number of aspects of how we approach category strategy that makes it a very different approach to doing this work.

But before I do that, I want to share with you briefly the part of the category strategy that is not changing, and that is the value of premiumization, which you know has been present in our work for many years has been a source of value creation, and it will continue to be a source of value creation. For those of you in London, you will have the opportunity to see some of these products later on in our innovation showcase.

But here are some examples of the work that we have done over the past few months. You will see a lot of it in whiskey, some of it in tequila more and more so and also in other categories. So from just the Johnnie Walker, the Vault Couture Blend, as an example, or work that we did with Olivier Rousteing to the special Port Ellen Prism, which went in auction for $0.5 million to Don Julio Ultima Reserva, this one you will see later on, which essentially is a product that comes from the last harvest of Don Julio Gonzalez himself.

So this is my intro to say the part that is not changing. Premiumization will continue as a value creator, no doubts. Now what is new in regards to our category strategies. The work that we have done, and you will see how this comes to life, specifically in whiskey, tequila and in RTDs later on in our breakouts has 4 aspects that are specific and different from how we've done things in the past.

The first is our consumer and competitive lens, which is a real -- the real ability to map for each one of our categories through the lens of not only pricing but other drivers of choice that we have been able to identify through our data that really determine how each category is mapped. Again, you will see examples later on how this comes to life. But essentially, this allows us to segment the category. It allows us to determine what white spaces we have. It allows us to see how we rate, or how we place ourselves vis-a-vis a competitive landscape.

The second piece is a clear portfolio architecture with defined roles and price positioning. So for each one of our trademarks in a given category, you will see how this plays out. And the category itself, you can see how it lays out. Again, I'll give you some examples in a minute. The third point, very important and actually very new is we are including RTDs as part of the trademark strategy. And so you will see an end-to-end approach to this trademark and to the category. And what we are then looking at is how do we serve consumers across different occasions, across different price points to satisfy the needs of that particular consumer.

The fourth point is indeed this all links back to the market, and each one of the markets will have that particular category strategy in practice. In source with the data points that are particular to that location. Let me give you an example of how this translates. This is specific to a test that we run in the Middle East and specifically around our whiskey portfolio.

And let me give you a little bit of context. The Middle East has for a long time for a while, at least being a very premium focused environment with very premium consumers. And certainly, our approach to whiskey in the Middle East has been addressing that opportunity. And you see that graphic on top of this chart. What we realized is by doing the work that I just referenced earlier by mapping the consumer landscape by mapping the competitive context that there were a number of consumers and occasions that were being underserved. And in particular, an opportunity for our value whiskeys, which hadn't been activated in that manner in the past.

So we took action and an intervention across brands, including Black & White, VAT 69 and J&B, which allowed us to create a wider spread of pricing opportunities and different brand choices for various consumer groups that actually in the Middle East had some knowledge of these brands in different stages and perhaps some of their home countries.

By doing this, we allowed for those brands to actually grow. And also, it gave us opportunity to fill in some white spaces with innovation, including Johnnie Walker Red Soul or the launch of Black Ruby or indeed, the launch of Bulleit Bourbon. So the real leverage of our whiskey portfolio more broadly, occupying more consumer spaces, occupying more price points. And that test resulted in a fiscal '26 impact that you see there.which was positive.

We then took these learnings and tested actually in more places. I just want to say that these were very surgical interventions. I hope it became clear from my charts before, but really looking, as I said, to the mapping of the category to the price points that were being occupied or unoccupied to the white spaces that we could identify. And just to give you a sense of dimensions. In total, EMEA, this number of tests that we run on interventions was of 80 in total.

In Latin America, this number of interventions were 20 in total. As you can imagine, running these interventions in H2 produce different set of results, some stronger, some less. The aggregate of those interventions deliver an increase in volume in both instances, both EMEA and Latin America of the magnitude that you see there, plus 26% volume in EMEA, plus 25% in LAC. And the total aggregate gross profit dollar actually was superior to that period the year before.

Net-net, the contribution to the total region was positive in both instances. So this is something that I hope it will become more clear when you see more details on our whiskey strategy later on, our tequila strategy later on and also the RTDs.

And I'm going to pause here, and I have to say for the webcast that we're going to pause the recording. You will, however, I am asking you not to switch off and stay on the link there's going to be a count down because that will tell us -- we're going to go into the breakouts. And we've got -- that counter is going to tell us when to come back for the Guinness session.

So with that, I think I've got to hand over to Sonya.

Hello, everybody, and to those rejoining on our webcast, you're all very welcome to this session. And I'm delighted to talk to you about Guinness this afternoon. It's a brand that's very dear to my heart. It's part of my DNA as a Dubliner. But actually, my father also had a pub right at the gate of the St. James's Gate Brewery in Dublin.

I'm going to talk you through the progress that we've been making on Guinness. Why we believe that the brand is one of the most attractive growth opportunities within beer and how we are positioning Guinness to deliver a long runway of growth and further success. Starting first off with the market and with our performance. Guinness plays within the premium beer segment. It's $135 billion dollar market, I should say, and the fastest-growing premium beer segment for the past 3 years. And within that, Guinness has significantly outperformed. We have delivered 13% NSV CAGR, well ahead of premium beer growth of 5%.

GB grew 22% CAGR, whilst both Ireland and North America grew in high single digits. Across the board, we've delivered near universal share gains, strengthening our position within premium beer globally. And this growth is also extremely high quality growth. Guinness generates more than 60% of gross margin and delivers ROIC of 30%, which is roughly twice Diageo Group. Looking ahead, we're continuing to see very attractive fundamental growth for premium beer with Guinness extremely well positioned to continue taking share within that segment.

So why are we excited by the opportunity ahead? Well, today, our top 3 markets, GB, Ireland and the U.S. represent 2/3 of NSV. But even in those core markets, we are significantly underpenetrated. 13% penetration in GB, only 5% in the U.S., and that compares to 24% in Ireland. So that shows there is considerable headroom for growth in terms of attracting both new consumers and increasing our penetration within their growing occasions. And these 3 markets will, therefore, continue to drive the majority of Guinness growth up to F '30.

However, although we're sold in over 150 countries around the world, outside of GB and Ireland, where we have those market-leading positions, we are very small in many of the premium beer markets in the world. And in many markets as well, we're actually not represented at all. For example, even in the U.S., Guinness is only #12 within premium beer. So significant headroom for us to grow further within those markets.

So to capture the global opportunity efficiently and effectively for Guinness, we operate 3 distinct route-to-market models, which I'm going to walk through in turn. And the benefit of this is these 3 models give us a lot of flexibility because rather than a one-size-fits-all approach, we can select a structure that maximizes growth, maximizes profitability, capital efficiency and speed to market in each geography. And this operating flexibility is a major competitive advantage for Guinness and an important enabler of our global expansion plans.

So let's talk first about the direct-to-market model which includes most of our large strategic markets like GB, Ireland and the U.S. And here, we directly control distribution, our customer relationships and our commercial execution. And we will continue to invest behind those markets, particularly in expanding our route-to-market capabilities in both GB and North America with increased sales resource to expand both outlet coverage and call frequency. In GB, growth will also be driven by continued growth of Guinness Draft, expansion of Guinness Zero and further innovation, and that will also be the case in Ireland. In North America, further growth will come through adding around 150,000 new accounts. both on and off trade by F '30.

The second model is our third-party distribution, and this approach is particularly relevant for Continental Europe, where we can leverage the reach and the local expertise of strategic partners. It provides broad geographic coverage and improves our ability to execute. In Europe, we are simplifying our partner network, working with fewer, stronger distributors, which is enabling us to improve our pricing, our customer service and our commercial activation.

Within Europe, France and Germany are particularly exciting opportunities given their scale of the large premium beer markets that they represent. And this model is already delivering results. We have achieved double-digit growth while significantly increasing distribution, including more than 25% growth in our on-trade presence.

Going forward, we intend to continue to increase our outlet reach to 100,000 outlets by F '31, strengthening our execution and building Guinness into a much larger premium beer player across Europe.

And finally, our third model, where we operate via third parties through licensed local production with royalty payments. And this is particularly valuable where Guinness is underserved and where local partners offer faster and more cost-effective expansion. These trusted partners grew Guinness under license using Guinness Foreign extract and adhering to our exacting quality standards. And the key advantage here is really scalability because without requiring additional significant CapEx, we can leverage the partner's manufacturing capabilities and their extensive distribution networks. And while profit per hectoliter is obviously lower than in our direct-to-market model, the trade-off is significantly broader geographical reach and very attractive returns with very modest capital requirements.

And importantly, this model is also proven. In Australia, since moving to our new partnership with Lion, we have seen strong double-digit growth and increased distribution. And in Nigeria, since our transition to our new brewing partnership, Guinness has significantly improved its financial performance, its return to profitability, its growing share and expanding distribution. And taken together, these examples really show how this licensing model can unlock growth efficiently whilst creating value for both Guinness and our partners.

So when we bring those 3 operating models together, we're really creating a powerful platform for global growth in terms of both the breadth of the markets covered, but also the strength in existing markets. And our ambition is for Guinness to become a top 10 premium beer brand in the U.S. and to further strengthen our position in key European markets.

Now beyond that, we obviously also see further exciting opportunities to expand in growing premium beer markets such as India and Brazil. Of course, that growth is only possible if we have the supply capacity. In recent years, we have expanded capacity to meet growing demand, and we will continue to do so in support of these bold growth ambitions.

Between F '26 and F '29, Guinness production capacity will have increased by more than 50%. We opened the new Littleconnell Brewery in April 2026, which added circa 25% more capacity for both Guinness Draught and for Guinness Zero. A second phase of Littleconnell expansion is planned for F '28, and that includes further focus on non-alc production capability. Beyond those already planned investments, we remain confident in our ability to be able to expand further in a modular way in line with those demand requirements.

Between F '26 and F '30, we will invest just under $1 billion in CapEx. Around $670 million of that will be directed towards supply infrastructure, including the Littleconnell brewery expansion, packaging capabilities, and additional zero processing capability. The remaining investment supports in-market equipment such as taps and kegs with that beer to go through as well as brand growth initiatives such as investments in our brand homes and other strategic projects. Given Guinness' growth potential, its profitability and its very high ROIC, we believe this is a highly attractive deployment of capital.

Now Guinness has also a strong track record of successful innovation. And our approach when it comes to innovation is very simple. We want to bring Guinness to more people in more places, in more of their occasions. And Guinness Zero is a great example. The brand has already established strong momentum in core markets and is contributing materially to Guinness growth, especially in GB. This year, we added over 1,000 Guinness Zero outlets in Ireland. We've added 3,500 microdraught points for Guinness Zero in GB and North America still remains largely untapped. So as this production capacity increases, we're going to extend distribution across more outlets, more channels and more markets.

At the same time, our Future Serve program has really expanded the way that consumers can enjoy the craft and ritual of the distinctive Guinness experience. Guinness Nitrosurge brings the iconic Guinness surge and settle right into the hands of consumers no matter where they are. It has achieved impressive penetration in Ireland, already almost 1 in 4 households have a Guinness Nitrosurge.

Microdraught is very interesting because it unlocks on-trade distribution for those outlets with a keg-and-draft traditional setup may not be practical or appropriate, and it helps those customers serve a perfect pint of Guinness to their customers. It has also been a big part of supporting the Guinness 0.0 rollout as about 1/3 of the volume from Microdraught is actually Guinness Zero.

So all of those innovations together really strengthen the Guinness brand, whilst increasing accessibility in more consumption occasions. But we're not going to stop there.

And today, I'm delighted to share the next stage of this journey with us. Building on other successful Guinness innovations, we're excited to introduce this, the next step in our Future Serve program, Guinness Nitrosurge Tap. It's going to launch in 2027, and it is built on the same ultrasonic technology as Nitrosurge, but it takes the experience much further. The device attaches to a 4.75 a liter Guinness keg, which really allows consumers to pour and serve perfectly fresh draught Guinness in their homes with their friends. Consumers will enjoy the complete iconic Surge and settle ritual with this innovation.

Initially, we're going to launch Guinness Nitrosurge Tap in Great Britain, in Ireland and the U.S. And in other markets, our priority remains extending distribution of Guinness Zero, extending distribution of Nitrosurge and extending, of course, Microdraught. And this represents really, I suppose, another example of how Guinness' innovation is staying true to everything that makes the Guinness brand and products so distinctive and magical for our consumers but also continuing to drive incremental occasions as well.

So in summary, Guinness combines an attractive category position. It's got strong momentum. It's got substantial global headroom. We're going to service this through our flexible route-to-market model, with disciplined investment and supported by a strong innovation pipeline. And this gives us confidence that Guinness can continue to deliver sustainable, profitable growth and create significant value over the years ahead.

Thanks for your time today. Next, I would like to introduce John O'Keeffe, who will present our North America business. John?

Thanks, Sonya. Okay. Let's talk about North America then. As many of you know, the North American market has been difficult. And within that, our performance has been deteriorating with us losing share declines across around 65% of our business. I'm about -- actually, before I get to talk about my first 100 days, I just do want to call out that Canada within that has been quite robust with strong top line growth, good share growth. So really, I'm going to just focus this presentation on the U.S.

So look, I've been about 100 days in the role. I've carried out a deep diagnostic on the business and already begun to make some interventions to course correct and to make this business more competitive.

The drivers of underperformance range from long-term declines in some of our core brands through to overexposure to premium, underexposure to RTD and small formats and an operating model that was quite -- that is quite cumbersome. So I'm going to unpack each one of these drivers during the course of my presentation.

Let me, first of all, though, start with the first issue, which is a number of brands. I'm going to talk about 3 in particular, that have been in long-term decline. Let's talk about Crown Royal. It's our second biggest brand in the U.S., okay, but the strong growth of flavors has masked the underlying growth in this business. Crown Royal Deluxe is losing heartland consumers. Those heartland consumers are in very specific states. About 12 states in the U.S. account for 70% of the Deluxe decline.

Our #1 strategic priority on Crown Deluxe is to stop the hemorrhaging and to hold on to those loyal consumers. So how are we going to do that? First of all, we're going to introduce a unified cohesive trademark campaign, which we just launched in June called Bring It. What I like about this campaign is it allows to activate 2 important platforms for those heartland consumers: NFL football, where we sponsor 18 NFL teams so we can activate locally, put drinks in hands; and secondly, country music lifestyle. This visual on the left, Realtree is a hunting lifestyle brand. You may not be au fait with it. Our LTO sold $25 million. So it's that kind of heartland activation that I think is going to be strategically important for us moving forward.

When I look at the packaging, I think we can improve a lot. On the one hand, I like the premium glass iconic bottle that we have. On the other hand, we've cheapened it by adding a plastic cap to it. We will be rectifying that. We have the inconsistent use of the purple iconic box on shelf, which reduces our on-shelf impact. And we will further reduce that on-shelf impact by introducing a range of flavors with different colors. We need to implement a more cohesive brand identity dialing up the iconic Deluxe purple.

Now there is a role for flavors. It does bring in new consumers, but we need to be more disciplined in how we do that. And I'm particularly interested in the role for flavors and innovation and what it can do to support our core Deluxe brand in holding on to those heartland consumers. And of course, putting Deluxe and flavors into much higher quality, especially higher quality small formats than what we've been doing thus far.

The second brand, which has been in long-term decline is Smirnoff. It's been losing share for 8 years. Let's start with fixing the proposition. This is what we put out in the last 5 years. Inconsistency of campaign, chopping and changing it a lot. You cannot build brand distinctivity when you're that inconsistent. We are urgently working on a new cohesive trademark campaign that will start to rebuild the distinctivity of this brand the way we've done in other markets. Critically, we're going to start managing Smirnoff as a single trademark, both Smirnoff Core and Smirnoff Ice together. That's particularly important in the U.S. where we have historically been running them in 2 different divisions run by 2 different leaders, which is no longer the case. And I'll come back and talk about the operating model in a little while.

Now as I've traveled around the U.S. in the last 2 months, I've been struck by how poor on shelf we look with Smirnoff. There's a number of packaging missteps that we've taken, which I'm currently undoing. We're going to move from recycled PET, which is cloudy and opaque, hard to see through to virgin PET. Purity after all is at the heart of this proposition. We're going to have both virgin PET and glass on shelves together. After all, different consumers require different packaging for different occasions. And finally, we're going to add back the handle on our biggest SKU, the 175, which frankly, without it, is too heavy to lift, not portable, and difficult to pour.

In addition, we've had an array of flavors, 24 flavors. It's too complex for our customer. It's too complex for our supply chain. And frankly, it's too complex for our consumer. We're going to have to deploy a more disciplined approach to how we use flavors within Smirnoff. I've also inherited a capacity constraint on small formats. I've approved a $20 million investment in CapEx, which has gone live, which means that not just for Smirnoff, but in fact, for a number of our brands, including Crown, we will now have unlimited ability to go after our small format opportunity starting from the second half of this fiscal and closing out those distribution gaps.

The third brand, which has been in long-term decline is Captain Morgan. For the better part of a decade, we have been losing consumers. In fact, I feel we've lost a generation. Our legal drinking age to 29 is half of what that was in F '13. I feel strongly we need to go back to the core DNA of what this brand is about. In its heyday in the U.S., Captain Morgan was about the instigator of good times, party, high energy. We are going to be bringing the Captain back.

Starting with things like this 40-foot ship that we roll in on match day into various urban areas, getting drinks on hand, starting the party. We're going to bring the Captain back on our core point-of-sale, even on our label, where we've lost the color and vibrancy and vitality of this brand, we are making changes. And we're going back to simple serves. The #1 serve for any rum drink in the U.S. is cola. We had that territory. We're going to regain it.

Now we also need to crack RTDs. The latest innovation we have is Smirnoff Sliced Colados. On the one hand, I like the fact that we're getting into coladas, which is an authentic rum offering. But when you look at this packaging, I feel it doesn't pay enough rent to Captain Morgan. It doesn't amplify. In fact, you might be hard-pressed to actually identify it is from Captain Morgan. So there's something in how we brought the mixes together that we need to significantly improve going forward, and we have started on that already.

So 3 brands in long-term decline that require some fundamental fixes, and we're on the case.

Now let me talk to you about a different kind of brand, Don Julio. It's a fantastic brand that grew 40% in F '25, okay? I recognize we're now in decline and losing share. I feel it's critical to regain and expand our quality and craft credentials. Questions have been asked in the U.S. specifically about the quality of Don Julio, and we've been at pains to answer it. We've spoken and we've engaged in advocacy programs with tens of thousands of bar staff, thousands of influencers and 124 million consumers in the last 12 months. And I'm encouraged now that the consumer sentiment towards Don Julio is now at the levels it was 18 months ago.

Now the other thing we need to do with Don Julio is keep it really culturally true. Don Julio is the #1 talked about spirit brand in the U.S., not tequila brand, spirit brand. And we need to continue to work hard at keeping its cultural cache, whether that's things like the FIFA 1942 pack, $35 million sold out within 2 weeks through to Lunar New Year packaging, which Stephanie would have shown you upstairs earlier. All the way through to 1942 being toasted at big celebratory moments like the Oscars, working hard to keep its cultural credentials is an utmost priority. It's good to see that on the back of FIFA, we've gone back into share growth in the last 7 to 8 weeks in those markets where we've activated.

Now we've seen the whole industry move towards small formats. We have a fantastic distinctive set of small packaging for Don Julio. It's also really important we lean into this opportunity because Don Julio is the most multicultural brand that we have in the U.S. and that cohort of consumers right now is under particular economic stress. And so this is a way to allow those consumers access what is a very aspirational brand. And again, closing out those distribution opportunities is top of mind, top of focus.

Now let's talk about the other tequila brand in our portfolio, which really is in different shape because it's been on the slide for longer. And I would argue a lot of that is self-inflicted as we took multiple price increases after COVID. What I've been encouraged by really is this interesting combination of a competitive value proposition combined with awareness building. What FIFA has demonstrated to me is that when you activate at scale, you get out of the lockbox, you get on the floor, you get close to consumers at the right price point, it can be resonated. In fact, that FIFA activation has turned around a 3-year share decline to winning share of total spirits for the last 7 to 8 weeks.

I'm not declaring success in Casamigos, but this is an encouraging formula for us to pursue. I'm also encouraged about the traction we're getting with Casamigos margaritas in the cocktail collection, which is growing high double-digit growth. In addition to Casamigos margaritas in the 200 ml can, which when launched was in the top 20 RTD spirit launches that year. Now unfortunately, we had some packaging issues with that can with a liner. It leaked. We've had to withdraw it from the market, right thing to do. We're fixing it. We're getting it back out there before the year-end.

My bigger point, though, is that Casamigos, great taste in Casamigos Margaritas, whether it's in ready-to-serve or ready-to-drink, put at bartender quality in the right packaging format is very resonate with our consumers and getting traction.

Now let's talk and move beyond the portfolio and talk about our go-to-model organization. I mentioned that I found it cumbersome when I moved there. So we're fixing that. Here are the fixes we're doing. We're moving from 2 divisions: Spirits and beer to moving to a single -- under a single commercial leader where we have those reporting in, supported by a single set of support functions and one set of key accounts. That is going to improve our agility immensely.

Secondly, we're moving from organizing our spirits divisions by regulatory market, open controlled franchise states to organizing it by geography at state level, where we're going to have state-level decision rights, allowing us to be much more customer-focused and agile. We're going to move from having spirits and beer not having any synergy, to spirits and beer being sold by the one team to our national key accounts, okay? So we're going to have 4 spirits divisions, 1 Guinness division reporting into 1 commercial leader, supported by 1 set of support functions and 1 national key accounts, more agile, more efficient, more nimble.

And then we're going to go from dedicated resource in our distributors that have been very focused on driving distribution to reorganizing our distributor, rewiring them and reincentivizing them to not just drive distribution, but to also drive point of sale. And all of that is going to be supported by a significant change in the leadership teams across North America and in the capabilities that I feel we need to go forward.

Let's talk about growth. We have a number of brands growing Grainne mentioned Guinness. In its 14th consecutive quarter of share growth in North America. Growing since 2023. Guinness Draught is the #1 tap handle in New York, #1 tap handle in Boston. We are still chasing a lot of growth. And as Grainne said, we haven't really gone after the Guinness Zero opportunity yet, and now we're getting after that in earnest.

Ketel One, a phenomenal brand. I really like the growth drivers that we have, the Made-to-cocktail platform. The fact that we use a lot of brand ambassadors in the on-premise through to the espresso martini machines that we've deployed widely across the U.S. We can lean more into that. And we're beginning to get a little bit of traction with Johnnie Walker, right, growing both the top line and share. So leaning into those areas of growth will also be a priority.

Let's talk about RTDs. I'll be the first to admit that we're underexposed on the RTD category. It wasn't a priority in the past. It is now.

Smirnoff Ice is almost a $0.5 billion brand in the U.S., growing share and the top line 6%. I spoke about the cocktail collection through the prism of Casamigos Margaritas. But it's not just for Casamigos, we also have Kettle One and Bulleit and so forth. That's an interesting collection for us that's beginning to scale and get traction. And of course, I've talked about Casamigos Margarita in a can. I feel there's a blueprint beginning to emerge on how we can play a bigger game in ready-to-drink and ready-to-serve in North America.

So how is all that going to come together? So in F '27, my focus is on stemming share loss, becoming more competitive. We deliver that. We anticipate and these are our assumptions. This is my assumptions, by the way, that we'll deliver mid-single-digit NSV decline. In F '28, as we address some of those fundamental issues, we're going to move to holding share and deliver within that context, low single digit and then F '29, start winning share. Within spirits, we're going to restore competitiveness to some of those fundamental fixes I just talked about and some of those brands have a long-term decline as well as get growth back in those more recently declining spirit brands as well as leaning into where we have momentum.

RTD, we've got good growth, good momentum. We need to scale it. And finally, we need to lean in on that momentum we have in Guinness. But my focus is on the next 12 months on making the interventions across the portfolio, making the interventions across the brand and the operating model and making interventions across the leadership team, all in service of getting this business more competitive again.

Thank you. And with that, I'm going to hand to Alvaro. Thank you.

Thank you, John. Hi, everybody. So let's go into Latin America and the Caribbean. So I wanted to leave you with 4 key messages. First, the price. Latin America is a dynamic RTD and spirits market, and we lead the categories that are growing. Second, the proof. The category strategies that Cristina and her team outlined during today, we have been already executing that across many markets in Latin America. We have rebuilt our portfolio. And as a consequence of that, we are growing volume and value together, and we have expanded operating profit dollars faster than NSV. Third, the runway. We have over $10 billion of locally produced spirits in Latin America, an opportunity that historically, we haven't tapped into it, but we are doing it now, and we are continuing making progress on that.

And last one, and this is one of the most important takeaways that I really want you to take is the system, our operating model. We have been building and investing in capabilities across the region to build a more resilient business, a business that can perform when we have tailwinds, but also a business that can perform in economic downturns where the consumer is under pressure.

So let's get into the market and the price and our performance. This is a $25 billion market. We hold 22% of market share. We have almost 3x the market share of our next competitor across the region, and we continue outperforming the market. We've been really focused during the last couple of years on bringing back volume as part of our top line growth equation, and we are making progress on that as well. The market was down in volume and spirits 1%, we were up 3%. And spirits and RTD combined the market was up 2%, and we were up 8%.

Now moving into our performance of fiscal year '26. We were up 3% in volume, 7.7% in top line and almost operating profit growing almost twice the rate of our top line number. That performance did not come from everywhere. It mainly come from 3 categories. But before getting into the specific numbers here, one of the most important decisions that we have been taking across Latin America is to be really focused on fewer priorities, but to invest to drive the scale and the impact that we need. 90% of our marketing spend in Latin America is behind 5 trademarks: Johnnie Walker, Buchanan's, Old Parr, Don Julio and Smirnoff and Tanqueray in Brazil. That concentration is really helping us to drive share gains across the core categories at once instead of trying to defend everywhere.

Whisk(e)y is our #1 category. We are the #1 player. We are gaining share. And in a few seconds, I'm going to tell you what are we doing in Whisk(e)y as a category. Vodka, growing 19%, gaining 269 bps of market share, and this is Smirnoff plus RTD. And now this is the fastest gaining share category that we have in our portfolio. And tequila, growing, but we are #2. We are not satisfied. And this has been one of the strategic tension points that we have been dealing actually during the last 3 years. And I will come back to it to let you know what are we doing about it.

So let's start with whisk(e)y, our heartland. whisk(e)y is by far the largest category in Latin America. Over $6 billion in retail sales value. Julie during the breakout show the category strategy. So I'm going to tell you what are we doing and how we are executing that across Latin America. We rebuilt the entire portfolio across mainly 3 price tiers. Below $10 to drive accessibility with formats and with 2 strategic value plays, White Horse and Black & White, which is really helping us to drive recruitment into the category. Between $10 and $20 with real intentional focus behind Johnnie Walker Red Label, this is the segment of the market in which the majority of the volume sits. So Johnnie Walker Red Label and formats with Old Parr are really helping us to really capture and to really recruit more consumers into this price tier.

And then between $20 and $80, which is the core part of our portfolio, Johnnie Walker Black, Buchanan's and our super premium variants across the region, which the most relevant ones are Johnnie Walker Gold Label and Buchanan's 18. So 3 priority trademarks to very strategic value plays. And here is an example of what the price and pack architecture has returned to us. And this is very important for me to take you through. This is not just about pricing repositioning. This is having the right brand at the right format, with the right price, in the right channel. So this is beyond just repositioning pricing. And you can see here the results.

Volume up 28%, NSV up 21% and gross profit dollars up 18%. So in whisk(e)y, we have rebuilt our leadership.

Now let's talk about vodka, including RTDs. This is one of the most exciting categories right now in the region. First, RTDs. In RTDs, right now, we are focusing on driving the scale. We have now -- we are now in Latin America, the #1 player in RTD and Smirnoff Ice is the #1 brand and the fastest-growing brand across the region.

Second, we've been focusing in creating iconic drinks to really recruit consumers from locally produced spirits. And Brazil is a great example of that with Caipiroska. Potentially many of you are familiar with that serve. But that is one of the most popular serves in Brazil. What it's doing it is really disrupting Cachaça. Cachaça is king. So in the on-trade, it's really helping us to recruit consumers at a scale just by driving that serve consistently across the market.

Third, flavors. And flavors, we've been very intentional to design products, to disrupt, again, this local consumption occasions. And this is the example of Smirnoff Tamarind in Colombia, which is really, really doing that. 60% of buyers of Smirnoff Tamarind Colombia are new to vodkas category and 40% of them are switching from aguardiente.

And finally, with innovation, we are very excited about this project, which is Smirnoff Ultra. Again, with the intent of recruit from out of vodka category. It's a smoother version of Smirnoff, lower ABV, with a splash of coconut water. Thinking about not just the liquid, thinking about the serve and how that's served, that drink will continue recruiting from that massive value pool, which is cane in Brazil.

So the summary on vodka is this is not vodka gaining share of vodka. This is Smirnoff really tapping into local consumer consumption occasions, especially in Colombia and in Brazil.

And now tequila. As I said at the beginning, this has been one of the biggest tension points, but we are making progress. The main issue with tequila -- sorry, I'm not doing anything. Can we go back to tequila, please? Okay. In tequila, we were clearly over-indexed to super premium. Don Julio as a trademark in Mexico used to be mainly one variant, which was Don Julio Setenta or Don Julio 70, which played just in the super premium segment of the market. And we were overexposed, especially in a category that was in decline but the consumer was under pressure. 51% of the total volume of the market sits below the $30 price tier, and we were not playing there. And actually, that was one of the few pockets of growth of spirits in Mexico.

So what we did? We did 3 moves. We repositioned Don Julio Setenta to be more competitive with Maestro Dobel, which is the leader of the premium segment. Second, we repositioned Don Julio Blanco to be the most aspirational variant and the entry premium price point in the market. And third, we launched format, specifically 2 formats: 375 ml on Don Julio Setenta, Don Julio 70 and Don Julio Blanco to play in the $25 price tier and in the $15 price tier. So with that, now we are maximizing the power of Don Julio as a trademark, but also we are competing across all price tiers in the category.

So what has been the outcome of that or the results? It's early stages, but it's promising. Since December, every single month, we have been outperforming the market. And the market share moved from 13% in July 2025 to 17% in May 2026. So we are making progress. The job is not done yet in tequilas, Mexico, but we will continue delivering the strategy, executing the strategy to make sure that we are playing and recruiting consumers into the brand.

Now let's move into the system, which is the operating framework. The slide that you are seeing here is an example of Brazil, but we are running the same system, the same operating framework across all markets in Latin America. We've been focusing on building and investing behind 3 core capabilities: RGM, revenue growth management, IBP, integrated business planning and commercial excellence. On RGM, as I said at the beginning, it's a holistic approach in how we are going to meet the consumer where the consumer is, which is well beyond just pricing reposition.

On IBP, with integrated business planning, we are having a better pulse of the real consumption demand of the market, which is helping us to be more -- to have better predictability to be more agile in how we are reacting to how the consumer is behaving and changing and more importantly, to have one commercial end-to-end system, marketing, sales and supply working as one single unit.

Now I'm going to -- let me pause on stock-in-trade. And you can see the results of the different capabilities that we are delivering in the market. On stock-in-trade, we've been expanding our stock trade monitoring. You can see the example in Brazil moving from 67% to 83%. We have removed $20 million of stock in trade in Tier 1 customers. And as a consequence of that, we have moved from 70 days to 50 days of days of coverage.

In Latin America, just to give you an example of what is happening in Latin America, our coverage right now is 91%. We have removed around $130 million over the last 2 years on stocking rate in Tier 1 customers, and we have moved from 105 days to 75 days of days of coverage. The capabilities that we are building plus the robustness of our control environment has giving us the confidence that we will continue sustaining this in the future.

And going back to commercial -- to the commercial excellence. On-trade has been a key priority area for us. And as Dave said at the beginning, it's a priority for the company, it's a priority for Latin America. We have improved our outlet segmentation. We have more feet on the street. We have now prioritized 40,000 outlets. And you can see the KPIs and the improvement there, more than 13% of selling-out growth and 3x the rate of sale versus the outlets that we are not covering.

As a consequence of that, we are improving our service, 94% of OTIF but more importantly, what the real feedback is what the customers are saying. In the Advantage Survey, Brazil moved from the 20th place to 11th place in 1 year. Great progress, still a lot of room for improvement. This is, for me, what really gives me the confidence around how we are going to continue shaping the future of the region. And as you can see, the results are not a consequence of a good year, the output on a consistent system across the region.

And now what is the future? What is the runway? And what we are excited about? We will continue -- there are 3 things that are not a forecast. One, the first one, we will continue scaling the category strategies to the rest of the markets in Latin America. Second, RTDs, exciting market, $3.5 billion, growing at 24%, and we have the #1 brand. And third, which is one of the most exciting ones, as I said at the beginning, locally produced spirits. Cachaça in Brazil, Aguardiente in Colombia, rum across the region. And this is not a promise. It's happening right now. As I said at the beginning, Aguardiente is made of tamarind, it is recruiting consumers who will gain Aguardiente in Colombia.

The Caipiroska serve is recruiting from Cachaça in Brazil and Black & White and Old Parr are recruiting from consumers. So the strategy is in action. That is what we are doing in Latin America. We are moving from being an international leaders player to be the most competitive player in total spirits.

And with that, I will hand over to Ewan. Thank you.

Thank you, Alvaro. Okay. Good afternoon, everyone. Capital deployment. So I'm going to share with you over just 5 slides how we are looking at improving capital deployment alongside customer service to drive improved returns and deliver a much more competitive Diageo.

Every drop of liquid we distill, every barrel we choose to fill, every pallet that we make and move around the world has to work harder for returns on the capital, our capital, your capital invested in this business. It's an investment portfolio and needs to be managed accordingly.

I'm going to unpack for you across how we are resizing and reshaping our operational footprint and the returns that will come with that. Our capital deployment, where is that CapEx going and what returns are we expecting? Our working capital, I will talk about full working capital, so finished goods and our days inventory. But I will also highlight, in particular, something you're all interested in, which is a large amount of capital that's already invested in our distilled spirits and maturing liquids. And then I'll finish with customer service and give you an update from Dave's comments at the half year where we sit and what work we've still got to do.

Okay? First up, as demand and the market has changed and our growth assumptions have changed, we have to take the difficult decisions around about our operational footprint. And those decisions are based on the right asset utilization, structurally getting the cost right for the future, improving the resilience of our business and improving customer service. They are the principles that lie behind that decision. We've had to take some of those difficult decisions that put us into $300 million of costs, including some of the impairment charges that you heard Dave and Nik talk about earlier today.

That's involved impairing 3 of 34 sites in Scotland around our Scotch distilling footprint, 1 of 3 tequila sites and 2 of 5 North American distilling sites. Alongside that, we've been running over the last few years. You've heard about the supply agility program that became part of Accelerate. And as you look at the delivery in that, this is in our spirits packaging network in the center of the presentation. We've been against those principles I outlined, optimizing that for the future.

So quite significant changes in North America, moving from 7 to 3 sites, including the new site that was built in Alabama. Europe, the sale of the Santa Victoria site, but consolidating into highly utilized, high-performing assets with a lot of supply chain agility in Scotland. And then in India, a pretty remarkable scale of transformation, which did include, in this occasion, some third-party partner sites, but moving from 100 to 35 sites, and that is all delivered and in place. Only 8 of those 35 are Diageo owned. The rest are our partners that we work with across India to deliver our service to customer.

Having done all of that, that delivers the returns on the savings where about $135 million is already in the recurring savings as we close F '26. And as you'll hear from Nik later as part of the overall savings delivery, there's $150 million that will come through over the 3-year plan period. And there's more that actually comes through against that because we've been impacting our distilled and the working capital on our balance sheet that will flow off the balance sheet as the liquid hits the P&L in the future.

Okay. Disciplined, dynamic and returns-based capital deployment on CapEx. That's the approach that we continue to take and we are strengthening as part of the strategy and the operating framework. You've heard already from Dave and Nik around it being at $1.25 billion. Broadly, half of it will be supporting growth. Of the $3.75 billion that goes in over the next 3 years of invested capital, just under $1 billion of that is invested in Guinness and the rest is supporting growth. Some highlights that I called out were particularly around about -- you heard in the breakout with Mark Sandys, unless you were online, that we are investing very selectively in RTD. We have good capacity and strong networks and route to markets, but there are some selective investments, particularly in GB market in Europe, where we'll strengthen that. And in North America, you heard from John about the importance of that investment in small formats that's already underway, and that cash will go through this year as we bring that capability online.

Also, as you'll hear, as I talk on a further slide there on around maturing inventory, as we've been looking at our inventories and the amount of liquid that we will choose to still distill, we're reducing our barrel versus the prior 3-year period. We're reducing it by more than 50% in the forward 3-year cycle. So a significant intervention that looks at what the rightsizing is as we move through.

And then very selective capabilities around about our cost reduction and the capabilities to make us a more competitive organization. They need to come through. They're actually increasing in the digital space as the SAP S/4 HANA costs come down. We're making sure that we are selectively returns-based, driving the right prioritization of those investments in the business in line with the deliverable of the 3-year plan.

Working capital efficiency. As it stands today, we have moved from 110 DIO. We've moved it to 90. We've got a little bit of sat in today that Nik explained earlier today where we had the SAP 4 HANA inventory to manage through the period of downtime in production during July. And we also had some Middle East protection that was in, but the underlying is at 90 days. The move from 110 to 90 days essentially is moving us from just over 3 turns to 4 of our inventory in the year. So making that capital work much harder for us in terms of how we're delivering that.

That is coming from the investments that we've been making in advanced supply and demand planning, the IBP process, so the integrated business planning process and ensuring that we are using machine learning, artificial intelligence, having the right data feeds that are combining with market intelligence to make the choices and decisions for our business. And when we make choices to put in place that working capital, it has to make sure that it's delivering strongly.

And when I come to the customer service slide, you'll see how that's not necessarily been the case because of the maturity of some of our processes and capabilities and competency in the organization and how we're fixing that. I will say that already the go-to-market organization has significantly shifted the culture in the company and the approach to moving things. We still -- as John has said and as Alvaro said, we've still got a long way to go. But already, those signs are coming through strongly that people understanding the business that when we take decisions around shareholder capital and we invest it to get the returns, we have to make sure that, that is done with very clear disciplined building blocks that we have then belief will come through, and we don't generate the slow and obsolete type goods that we're driving here, almost double-digit DIO, right?

That is an opportunity. We're confident in the work that we're doing around the portfolio segmentation, the rationalization and focus of that portfolio and the systems and the people capabilities that we'll take that to 85 days. Each day is worth about $20 million. And we have an ambition to take that below 80, but we need to prove that we can do that, and we need to bring that through. So I look forward to talking to you in the future on how we move that through. But go-to-market is strengthening that point of accountability and making sure the decisions are much more integrated with the customer at the center of it. So when I started around about working capital returns, customer service, they come together to make us have better returns and a more competitive business.

Now I said earlier, I commented around the mindset and how we think about this. This has already deployed shareholder capital, $8.5 billion of maturing stock. It's a sizable competitive advantage if it is deployed correctly. Now it's already deployed. It doesn't mean that we can't make the returns even better than the choices we've already made. So one of the areas I wanted to highlight was something I am very proud of. It's already delivered results. It was recognized with the Gartner Power of the Profession across all industries and sectors this year in 2026, which was our Scotch Intelligence platform that is very quickly now elevating and extending into being our spirits intelligence platform.

What that has already done in F '26 is give us $100 million in our P&L of further NSV. How has it done that? We've been able to take our allocated scotches, which tend to be some of our single malts and some of our deeper aged, so the higher gross profit dollar parts of our portfolio. And as that's allocated out at the start of the year, we need to make sure we're remaining dynamic in that year to the changing market conditions, the impact of our activations in the markets and is it selling through and stopping it being at risk of sitting in a warehouse after it's been bottled and tying up capital.

So pre-bottling, the allocation is done dynamically with decision engines and artificial intelligence within that platform. It looks at what's happening in rate of sale in every market in the world, looks at pricing and it automatically recommends decisions through to then change the allocations and it's an online trading marketplace between the markets where they can move inventory away because they can't sell it and someone else can take it. That's given us $100 million of additional sales in F '26, and we'll continue to scale and give benefit.

The second thing that the Scotch or now the Spirits Intelligence platform does is, it looks at and it's built with the relevant digital twin information, and it will get better and better and better. But we're now confident to see that as we take decisions on how we put liquid into barrel and into our warehousing network in Scotland, it now understands the angel share and the losses and how that changes in different parts of a warehouse individually from tall to bottom or in different locations and geographies.

So it directs our highest value, highest return inventories to the right locations to minimize the losses. That is happening automatically with decisions and artificial intelligence and learning. There's still humans in the loop. We will get more and more confident for them to start to move out of it, but it's a lot of capital. So we need to make sure we make really great decisions. And as I said, we'll take that across tequila and North American whiskeys and be able to then take and harvest those benefits, which are on shorter time cycles.

The second piece is we've clearly been taking some decisions on the assets that we will have. But the utilization of those assets, we've had to accept that some of them will be running at lower utilizations. That is the capital discipline that we need to make sure that we're taking the business, even though some of those decisions are hard, okay? We're here to protect capital and sometimes that means that the assets have to be adjusted.

Moving forward, you can see in the central chart, the shape of the capital that we've had historically. So this is -- if you think of net fill, as we empty out of that maturing inventory for bottling, how much are we choosing to kind of reduce the inventory or how much are we choosing to put in. You'll see that in F '25, we were putting significant incremental in. There's been a big correction in F '26, but the sustainable approach, as you see -- this is an estimate because bottling changes and then you've got to stay dynamic with how you distill through the year, and we're doing that much more frequently. We estimate around $700 million will go in over the 3-year pilot period into the right areas for returns. We scaled back production and distillation. That's been done across, in particular, I'd call out scotch, North American whiskeys and tequila. We're at the minimum requirements for future blend and support of growth.

And given the competitive advantage that we have in that, we want to make sure that for great brands like Johnnie Walker, Don Julio, Crown Deluxe that we have the liquids available to deliver the quality of liquids and the quantities for future growth but a very disciplined approach, and we adjust and look at that on a very frequent basis: Tequila monthly, Scotch biannually and North American whiskeys quarterly. Okay? You have to make sure you look at the whole value stream and how we do that, but that's driven and those decisions are taken at CEO, CFO and supply level on a regular basis and now centralized globally.

I'll finish on bringing it together under customer service. It is clear, Dave was very honest and transparent that the business has not been running in an end-to-end fashion with its strategy and its operating model to look at how we deliver best for our customer. We've been focused on that over the last 6 months. We've been able to make some improvements around integrated business planning, simplifying and standardizing KPIs globally, bringing more visibility to the improvement plans and where the challenges are to drive quick improvements. But we've got some more systemic things to be able to fix that will take us a bit longer.

So whilst there's some green shoots, it's not good enough, and it has to get a lot better. By doing that, we will improve our working capital, and we'll be able to drive the competitiveness of the business. But I would call out, in particular, forecast bias. As a business globally, we were running at 10%, and it was 10% biased to overset. So essentially, we're putting in place inventory for a much more ambitious plan than the realities. And we're carrying the working capital inefficiencies, whether it be in slow, obsolete or potentially written off goods or it be the cost of the warehousing, the efficiency of that warehousing and the transport networks. We need to get a lot leaner, and we need to deliver the value and the returns from getting a lot leaner. We've made quite a dramatic improvement, needs to be sustained and needs to be underpinned to make sure that, that can be delivered and in particular, through the integrated business planning process and the execution.

Alvaro did talk to some of the major improvements that came through in Latin America and the Caribbean. They are further ahead. They've been working on it quite with a lot of discipline, a lot of sponsorship from Alvaro and the team to make sure as an end-to-end business, everybody is focused on it. They've had the earlier investments when it comes to the advanced supply and demand planning tools. They've upweighted their capabilities and the seniority of some of the people taking the decisions, particularly in demand planning and the discipline to ensure you've got the activations and the building blocks that will deliver from the working capital that gets put in place.

But if I look at how they left this fiscal year, they're up at 98% on time, 97% in full. So very strong performance. The forecast accuracy is one of the best that we've got globally. It's over 70% and its forecast bias has improved from pretty high double digit to low single digit across Latin America. So the big focus has been, as Alvaro said, Brazil, Colombia, Mexico, but the culture is there across that region, and we need to learn from that and take those learnings very quickly across the rest of Diageo, and that's where we're focused.

A couple of grounding in some of the realities in big markets in terms of the improvement we still got to drive. If you take forecast bias in North America, it was 6%, again, biased to then underselling against it, in each one 7% in Q3. John has gone in very quickly make sure that the discipline is there in terms of the decision-making and ensuring that we can then quickly correct to something that's much more realistic to the demand that's coming through and therefore, the working capital and the returns can sit from a capital deployment against that.

In GB, the example is more around execution. The biggest example on that Pareto chart of where the biggest loss on on-time in full. In Q4 was on fulfillment execution, our order to cash process, our customer operations and our supply chain execution when it comes to case pick running of the transport network. There are significant areas of improvement, and that will drive the returns and the working capital improvement as well. So not somewhere to be proud, not somewhere to be satisfied, but very clear on where the improvements can come and the operating model is again driving the early shift in the business and now we need to kick on and deliver against that.

So as I started, essentially, every barrel, every drop, every case that gets made to then move around the world has to have discipline, has to have returns on capital and has to be dynamically reviewed so that adjusts to what's happening and what's playing out in front of us with the market.

That's me. Thank you. I'll hand over to Nik.

Thank you, Ewan. Okay. So a lot to digest there over the last several hours. And what I'm going to try and do is bring this together in terms of how we look at the next 3 years in terms of our financials and what that means in terms of an investment case and investment thesis. As you all can look at Diageo from an angle of being a more competitive but more focused on returns and value creation for our shareholders.

So if you start at the top line, and we all know growth is critically important, right? But it's critically important that we're focused on sustainable growth and profitable growth. So when we're looking at it from an angle of what are the building blocks, you've heard from John, right, talking about North America. It has been challenged, but there's clearly some strong interventions around how do we build for a more competitive offering in that market as well as a simplified go-to-market structure. The focus of the plan is to start stemming the share loss, get to holding share and then growing share, right?

So clearly, as John highlighted, we are looking at a mid-single-digit decline to a low single-digit decline and then getting to a flat performance in North America over the 3 years. That's what this algorithm starts with in terms of that first big market for us, North America.

When we look at the rest of the world, clearly, we are seeing 3% to 5% growth on a sustainable level across those markets, all right? This is also about continuing to gain share in those markets, all right, across the board. So you've seen some examples of that. Alvaro brought that to life in terms of how we're looking at both volume and value share. Very importantly, too, keep in mind that particularly in India, supported by what we're seeing as good tailwinds from a demographic perspective as well as the FDA as well as Latin America, these are volume-led plans as well. And I think that's very important for you to keep in mind.

Well, what does that mean then for the group as a whole? We're looking at circa flat to growing 1.5%, growing 2.5%. So if you really look at it from an angle of where will we be when we exit '29, we're looking at an exit '29 of about 2.5% to 3% top line growth, but that is with North America flat. And keep that in mind, and you go back to some of the stuff that Hannah talked about, clearly, if we see consumer confidence come back, and there is that correlation that she talked about that we have seen historically. And if that historic bias plays out into the future as well, there could be some incremental improvements there. But at least for now, this is what we see as the top line growth algorithm.

So let me now start walking down through the P&L because I want to make sure you'll get grounded in each one of the lines through. Gross profit, all right? I think there's a couple of myths that have been out there in terms of the fact that gross margin percentages are going to decline. Let me come back to that. Very importantly, we are focused on growing gross profit dollars, all right? In fact, gross margin percentage obsession, you'll have heard me talk about, has created a lot of issues for us in the past. That's not to say it's not an important metric. But again, it's always an outcome. It's a mathematical calculation. We want to grow our gross profit dollars, all right? Why is there a belief that with RTDs and playing a broader portfolio, we are going to drop our gross profit dollars? No, we're going to grow our gross profit dollars, all right? That is very clear in our plan.

Why do we also feel the gross margin percentage at 60% plus can be maintained and growing going forward as we look at this post the 3-year period is there is volume growth that is coming through in this plan. That volume growth supports fixed cost recovery, all right? So clearly, that supports margin percentage and gross profit dollars. You have got a very strong focus as you think about an improving mix, both from a category perspective as well as a country mix perspective as North America continues to recover, right? And remember, we are playing the full spectrum. So that doesn't mean it's an either/or strategy, it's an and strategy, all right?

And the third element is the productivity savings that Ewan talked about that will also support that. So we believe gross profit dollars growing and most importantly, maintaining that 60-plus percent gross profit margin is what we have for the next 3 years.

All right. As we look further down, and let's go to the next big line, which is A&P. Do we have the right levels of investment or more importantly, a question around have we cut too deep? So let me first start with the second element. We have not cut too deep. We've talked a lot about the fact that there was a lot of nonworking dollars that was duplication, waste that we've been able to pull out through the Accelerate program and a strong focus across the business around eliminating that. That's been about $300 million that we've been able to take out from the business.

And that's not to say there isn't more to go for as we continue to think about the opportunities in that space. We have also reprioritized investments for where we see the growth. We have been returns focused. We have pulled back on investments where I've talked about the fact that it was actually losing money for us and losing money for our customers. Clearly, not a good use of cash or capital or investments.

So clearly, having done all that, we feel the level that we're at is very much a sustainable level of dollar spend. I'm talking about roughly in this ballpark, right? So it's not about an absolute dollar staying at 3.2 or 3.1 or 3, ballpark, in the right area. What does that mean? You guys love to model, an outcome or an output of that is a circa 16%, right? We are not driving for a 16% or 17% or a 15%, all right? We're talking about the dollars that we spend and how well does that generate returns, sufficiency through the line, both above the line and below the line, end-to-end is the way we're looking at it.

All right. Overheads or SG&A. And I'm going to break this out a little bit over here just to make sure that it is grounded and clear. We are talking, as Dave highlighted, getting to an overhead as a percentage of our revenue of about 10.5%, putting us in that top quartile group of companies. What have we done? Well, Dave talked about the fact that we've made significant progress already to be able to implement that and move at speed. There will be some areas that will take a little longer, particularly as we look at the GBS piece, but these will start coming through as well. That's about $1 billion of savings that we're going to have, $850 million of that is in what we are calling overheads, both in COGS and in SG&A, all right? So there's an element of overhead that sits in COGS as well. That's about $850 million in total. And we've got another productivity element that Ewan talked about of another $150 million.

So in total, you're looking at $1 billion for an overall cost of about $1.2 billion. And I'm going to come back to that when I talk about cash. We have already taken a big chunk of that. About 70% of that has gone through our P&L in 2026 that we talked about this morning at that circa $752 million of a charge on restructuring. But this will really help as well as we look at the next line of our P&L, which is what does that mean in terms of operating profit.

So for us, when we're looking at operating profit, again, operating profit dollars will grow.

Top line growth we talked about, but most importantly, gross profit dollars improving. You've got the investment that we need in A&P and you've got significant savings coming out of your SG&A line, right? That supports operating profit dollars growth at a mid-single-digit range over that 3-year period on a CAGR basis.

There will be slight ups and downs, and I'll talk about why that is. If you looked at that previous slide, just remind yourself that we talked about that savings coming through, about 40% of that will come through in 2027.

Another 55% of that will come through in 2028, all right? So you've got the bulk of that coming through in the next 2 years to really support that operating profit growth of circa mid-single digit.

Well, again, mathematically, that means our operating margin percentage will expand, all right? So again, the fact that people talk about the fact that our margins need to suffer, our margins do not need to suffer, all right, both at the gross profit level, but more importantly, growing operating profit margin, but critically dollar growth.

Free cash flow. So let me just ground everybody again here in terms of what we're talking about. 2026 was a great year. We had a strong focus on cash. We were able to deliver $3.2 billion. Two things I would call out to make sure that we're grounded on the right number as we look at this on a recurring basis going forward.

All the numbers that I've talked to you about so far are on the basis as if the EABL divestiture has happened as of July 1, okay?

So when you look at this on a go-forward basis, keep in mind, there's about $300 million of free cash flow that is delivered from the EABL business, right? So that automatically brings that $3.2 billion number down to $2.9 billion.

We did have a one-off tax benefit in terms of historic refunds that we received in 2026, which obviously will not recur. So your baseline is a $2.8 billion when you exclude EABL and that historic item. When you look at 2027. Clearly, 2027 is going to be impacted by the cash costs of the restructuring program of about $850 million, right? And then when you look forward, you're going to see that number grow.

So I've seen some notes come out already that talk about, oh, cash is coming down by $2 billion. And keep in mind, $900 million of that is just that rebasing when you take out the EABL, right? That's just a like-for-like. And then you do have an $850 million restructuring charge, but let's step back and look at this from a payback perspective. We're delivering about $1 billion in savings, right, for an $850 million cash charge.

I don't think that's a bad use of capital in terms of a payback and a return, right, to make this business more competitive, more agile as we look forward. You heard Ewan talk about being disciplined and dynamic around our CapEx returns focused.

And you could already see that in 2026, where we brought our CapEx down to circa just under $1.2 billion, right? We have the ability to do that. A lot of our investment that we're looking at going forward is very much around capacity, capability building, right, cost reduction programs. There is the regulatory maintenance piece, et cetera, that's in there as well, but that's all well funded in that $1.25 billion that we've put into the model for the next 3 years, and we're working towards that target.

So what does that mean when you pull it all together in terms of a growth algorithm? Well, you're looking at low single-digit organic net sales growth. I talked about that, flat 1.5%, 2.5%. So a CAGR of somewhere around that 1.5% with that assumption around North America. mid-single-digit operating profit growth.

I walked you through that. We would expect EPS growth to be ahead of operating profit growth on an FX-neutral basis for translation and that cumulative free cash flow that I explained of circa $8 billion, but you've got that like-for-like piece as well as the impact built in for the $850 million of restructuring cost. We've had a very disciplined and clear capital allocation focus.

I think we've actually just not stuck to it as we should have. So I don't think it's really a change in how we think about it outside of the fact that I think when we're thinking about investment for growth, we're very much returns focused, right? So if you think about that first bucket, we talked about what we need to do for A&P. We've talked about what we need to do for CapEx. We've talked about what we need to do for maturing liquid, right? That maturing liquid piece you've seen come through in terms of what we've done, in terms of a correction of that baseline, but more importantly, a process is a lot more dynamic and flexible as we think about what we're laying down for the future, right?

And you even talked about that, whether it's monthly, quarterly or biannual cadences with which we're looking at it, all right? So a lot more dynamic in terms of what we're doing. So clearly, we've got a plan that is well funded from the perspective of investment that we want to make in the business.

We want to return cash to shareholders. There's a value creation opportunity here as we continue to look at that. And I'll come back to that in a moment. And I think it would have been odd if I didn't have that last box on the chart because you would automatically assume that we are trying to not talk about it, but let me be very clear. This is an organic turnaround story. This is not about us going out to do any acquisitions, all right? So it's really the first 2 boxes that we're talking about.

The first box is fully funded. What does that mean in terms of that second box? Well, Dave talked about this in the opening, right? The fact that we've been able to, with strong free cash flow generation and a rebasing of our dividend policy, be able to bring down our leverage from 3.4x at the end of '25 to 3.1x at the end of '26, all right?

More importantly, as we know that disposal proceeds are going to come in for the 2 transactions that we have announced, about 0.25 turn from the EABL transaction and about a 0.1 turn benefit from the RCB transaction, right? That, along with the free cash flow delivery will help us get to the midpoint of our target range.

This is about a year earlier than what we had even communicated to you all last year, right? So strong progress in that area. More importantly, absent any actions, which as Dave said, that's a nice problem for our Board members to have as we look forward, right? We can actually get down to 2x by the end of 2029, all right? I don't expect we'd be there. Why? Because quite honestly, we don't want to have an inefficient capital structure either, right? We do believe the 2.5 to 3x net debt to adjusted EBITDA is the right target leverage but it is one that we will review annually and make sure is it fit for purpose as we continue to look at the macro environment. But for today, with that, we clearly have a lot more financial flexibility to make the right choices and allow the Board to make the right choices to think about how do we return excess cash to shareholders, i.e., do we increase our dividend payout? Do we do share buybacks? And I don't think it's a binary or decision.

Again, it could be a combination. So it could be an end decision as well. But more to come on that. I'm sure you're going to want to build things into your model. Don't ask us more about it. When we get to that point, we will be able to share with you in a very nice way how we will think about that.

But the whole focus around cash returns to shareholders and a capital allocation policy that's clear and disciplined is very much intact. 2027 guidance. Well, no surprise from some of the stuff that you've seen that I've highlighted. So we are guiding for broadly flat organic net sales growth, supported by low to mid-single-digit operating profit growth and free cash flow of $2 billion after the cash charge for the restructuring. We expect the leverage, as I said, to be circa at the midpoint of our stated range of 2.5 to 3x.

So with that, I'm going to leave you with 3 things, right? 2027, profit growth and operating profit dollars growth in that low to mid-single digit. Number two, we do not need a long-term margin reset. Hopefully, I've been able to demonstrate that to you from both a gross and a growing over the 3-year operating profit perspective, dollars and margin. And three, we're going to have a lot more flexibility when you think about the leverage coming down at a much faster pace to us -- to allow us to do the right things for our shareholders as we look forward. So with that, Dave, I'm going to hand over back to you.

All right. Thank you. The last little bit really, and we're running at, dare I say, ahead of time after all that focus on being timely, we're on time, which is good. Look, the final thing I said this morning was the simplification and the alignment of incentives.

And what you see on this one chart is how we were in fiscal '26, both at the leadership and the broader team level from an annual and a long-term perspective and what it is we're moving to in terms of '27. Now from a REM policy point of view, Susan is out consulting at the minute. Our new strategy for Nik and I will be voted on in November. But notwithstanding whatever might happen in that space, this is what we're doing for the teams inside Diageo. So at the leadership level, I've already told you NSV operating profit and those individual objectives. And if you're a business group president, your first individual objective is the delivery of your region as part of that total. Longer-term incentives, cumulative cash flow, EPS and return on invested capital.

Importantly, elsewhere in our business, we're putting the accountability and the alignment where the activity is. So if you're sitting in our go-to-market organization, you will get your bonus based on how you delivered your part of the organization and not be linked to what's going on somewhere else in the business that you can have no impact on whatsoever.

Look, I think at the leadership level, you'll see the massive simplification that the Board are trying to drive for the long-term key performance indicators. We haven't really changed our REM policy for, I think it's 12 years. So there's quite a simplification involved in the long-term incentive. But hopefully, you see on the right-hand side, a simplification and alignment to what it is we've talked about as the investment thesis for Diageo. Okay. Now in the old model, when you were taught communications, you had that thing, which is at the start, you tell them what you're going to tell them, then you tell them, then you come back and you tell them what you told them.

Anybody else had that training? Cool. So just to recap, what did we say at the start? And I hope you 2 strategic battlegrounds, spirits, including RTD and Guinness.

We see growth in both, and we see an ability to win share in both. A number of you have said to me before, do you think you can win in RTDs? Hopefully, you now realize that we're #2. We're growing strong double digits, and there's actually -- we're in the growing -- fastest-growing part of the market, and we're committed to do it. We've got to do more.

But you understand why we see RTD is very much part of the spirit occasion, and that's a big change for us. Reassurance fee that premiumization is still very much part of it. You will see some more when you go down to the innovation center. But we are going to think about how we activate a broader portfolio. We have a unique portfolio as Diageo, and we want to use it much more proactively than perhaps we have done in the past.

And the way that we do that is we bring those category strategies, that category lens on top of those brilliant brands in order to manage the portfolio much more proactively.

John was very open with you. We wanted to be very -- I said at the start, we're going to be very transparent. We have some challenges in North America. Some of them are long-standing, some of them are more recent. We know what we want to do. It's going to take some time. We've got a very committed team there. We've made some very big interventions.

North America is a big market, making changes take some time, but we're not shy about recognizing where we start from. And as we lean in and do that and support John in the turnaround, we continue to accelerate growth in the rest of the world. Nik said it again, we're not looking for a profit reset as we walk through that turnaround, right? Given what we've done across the business, both this year, but going forward, we're going to invest GBP 1.2 billion, as you've heard, in that restructuring program, the details you've seen and Nik has just talked about, but that saves us GBP 1 billion. And that GBP 1 billion allows us to invest in the innovation, some of which you've seen, some of which you'll see downstairs, but also to invest in competitiveness.

And again, that's not about price. There's some tweaking of prices of that category strategy, but really in the scheme of things compared to what some people wrote, we're talking about -- we're talking about tiny things. But the investment in competitiveness is small packs, better packaging on Smirnoff, addressing some of the issues that John talked about, that's investing in the competitiveness of mix.

On Crown Royal, putting the quality back into the packaging is investing in competitiveness. So when I say that, I'm not talking just about price, okay? So please understand that.

But it also allows us, let's be clear, to protect the underlying profitability. Cash generation, leverage, Nik has been super clear on, we'll invest GBP 1.5 billion -- GBP 1.25 billion of CapEx over those periods, and you've now seen the breakdown of where we're going to spend it, big expansion on Guinness, right? If you looked at it historically, you see what's going to happen over the next while, we really are going to open the supply chain on Guinness.

Capital allocation, unchanged. As Nik says, we hope to give our Board a problem going forward of how best to think about returning funds to shareholders, but we've got to deliver it first. The focus is on organic, right? Try not -- we don't want to be part of the speculation that's out there.

This turnaround is based on us rolling our sleeves up and doing the best job we can possibly do with the business and the assets that we've got. And we've simplified the incentive schemes, as I've told you, and it aligns completely to what drives value in the business case, okay? A lot to do. We've done a lot already, I think. There's a lot to do.

If you haven't tested it out already, do so in the breakouts as a team. We're confident we have a plan that we can deliver. We're confident that, that delivers value for our shareholders, and it puts Diageo back in the place we all want it to be a long-term compounder of value for our shareholders, but we've got some work to do.

So that's okay. All right. That's it, right? We're now to the Q&A part of the session. Because we can't get everybody up here, what we thought we would do is Nik and I will up here, we'll sort of steward your questions, but I am going to -- where it's appropriate, I'm going to ask one of my exec colleagues to give you an answer if they're better placed than Nik or I.

What I suggest we do is we run for the half an hour that we said we were going to. And if we're running out of steam at that point, we'll call it and we'll go downstairs and then come back up and have a drink. But if we've got a little bit more time if we need it in terms of questions. Is that okay? All right.

Let me put this down before the hands go Nik, would you like to speak.

Sure [indiscernible].

Yes, actually with the light, it's really hard to see who is who. So go for it.

[indiscernible] don't want to see who...

Just a 2 questions [Technical Difficulty] You talk a lot about [ simplification ] [Technical Difficulty] Things on you're talking about some [indiscernible] there is more complexity coming in, so that's a reorganization [indiscernible] help to customers that transition [indiscernible] also like I said he is [indiscernible].

Okay. And Ewan, I'm going to probably ask you to augment what I'm about to say. Simon, ordinarily, I might directionally agree with you.

In this case, it's not the case. If you look at the complexity we have today in terms of SKUs and you look at the complexity we have today in terms of innovation, it's colossal. It's colossal, right?

So 1,200 innovation projects in Diageo in a year is colossal, right? So actually, I told you about the session we had with the marketers. The project size is going up as we cull that portfolio.

The SKUs are going down as we simplify. So actually getting bigger, more impactful innovation, whilst it is, yes, in that portfolio or it is in RTDs, overall, we're taking a massive amount of complexity out of Diageo as we make these changes.

But it's very important that we've got a strategy that allows us to make those decisions against it. But you -- sorry, Ewan, you wouldn't believe the complexity in the organization today in the things that you've just mentioned.

So I'm really very confident we're going to be a much simpler business as we go through this change with better innovation and better productivity by project and by SKU. But Mike, do you want to add to that?

Yes, sure. I think one of the best [indiscernible] across the value chain when it comes to [indiscernible] value chain, you're trying to solve and [indiscernible] the resource and effort [indiscernible] problem solving [indiscernible] relationship was trying to be [indiscernible] this kind of approach which goes more into the simplification of the operating model from the language to the accountabilities to the integration on an end-to-end basis is such a big simplification. I've been in the organization for 30 years.

It is a massive kind of tying together of how the business makes decisions. Thank you.

And essentially, I believe deeply what that's going to do is essentially make sure that our resources are more focused on saying as you develop an innovation, you are setting up with confidence from its inception and the accountability is through the business through the delivery to customer, not that you develop things and then it gets thrown over to supply to solve how you scale it and deal with all that complexity of scaling it on time for the customer.

So it's just one example that can be kind of played across even the business planning that we spoke about where essentially you're planning for many things that are never going to be a reality. And therefore, I think having a much more streamlined portfolio to then play across the price ladder, it just means that you're much more confident then the decisions that you take will play through in the reality of the activation of our value chain. So just a couple of examples.

And Simon, I'd just add on the piece that Ewan was talking about and particularly from a customer perspective.

I think we're also getting much better in terms of our offering that's occasion-based into the outlet and a brand pack architecture that works as well, right? And you heard Alvaro talk about that in terms of how important that is as well.

So in fact, we're bringing for simplification to them, too, in terms of what's relevant and what's going to move, right, with a broader offering of what we have on packs, formats that is occasion-led and channel specific.

Okay. Tony, how do you want us to do? Tell us what's the best way. Why don't you...

My question is on the U.S. First of all, you expect the market to reaccelerate from minus 3% to flattish. What's driving that?

And I think one of your competitor was talking about the market at minus 5. So I don't know if you could help us reconcile those numbers.

Can you talk about -- when you think about the growth of your performance and closing the gap in market share, how we should think about price mix versus volume? And then lastly, I think SG&A to sales in the U.S. is 6% or 7%, if I am right. How do we think about organic EBIT in the U.S. if you are going to be negative until quite flat [indiscernible].

Why don't you take the last one, and then we'll ask Hannah to come back.

So on that last one, if you look at our algorithm of circa mid-single-digit growth on the operating profit, that is assuming with what we have already put into place that John has moved on, on the operating framework.

A lot of those savings will come through in 2027. But again, remember, top line growth down mid-single digit. So our assumption here, again, I'm not giving you broad direction, but assumption here for North America underlying that mid-single-digit operating profit CAGR is low single-digit down for the next 2 years and then getting to a flat to slightly positive in year 3 on operating profit for North America, okay?

So we're not expecting that there's suddenly going to be great profit growth coming out of that because we've got to invest for that capability, that simplification and that competitiveness indeed.

Hannah, do you want to come back on the...

Can we put the mic on, please?

So I think from the consumer perspective, we were quite clear in North America. There is a significant affordability pressure that is the major headwind right now.

That, therefore, is a discretionary income challenge, especially seeing that in the middle income where they have the deficits.

So as macros return, as consumer sentiment returns, we'd expect discretionary income to come back, and we would see that higher spend on alcohol. So it's that series of events that needs to come through along with, as I said earlier, population changes, the immigration piece change, we see additional tailwinds as well.

Very good. And the number you referred to of that 5% that you said competitive, that's really more on the U.S. spirits side. Remember, the number that Hannah has put in for North America is total. So it also factors in what you're looking at in terms of beer, Canada, et cetera.

Sorry, it's Mitch Collett from Deutsche. Nik, in your slides on marketing, I think you showed that most of the reduction in marketing in fiscal '26 came from that nonworking money.

And then the guidance you gave in terms of organic sales growth looks, I guess, quite prudent. I'm sure there was a point where you thought about whether the best creator of value would have been to reinvest those savings potentially to try and get the top line growing a bit quicker, a bit sooner.

So I guess I'd be really interested in your perspectives on how you came up with the right sort of level is about 16%, and that's the sort of glide path to growth. And then Dave, I think you probably won't want to answer this, but I think at one point, you talked about there being 5 strategic alternatives. I'd be really interested to know what the other 4 were or what the 5 were, but if you can't say, I understand.

I'm sure you would, but we won't be sharing those with you. So I just wanted to demonstrate the completeness of the exercise that we challenged ourselves in a number of different ways, shared them with the Board, but we make the decision. That's what we're sharing with you now.

Can I start on the one you said for Nik and then he can come back financially, which is, look, the critical thing is, let's look at our history. Let's look at the history of Diageo. We stepped it up from 16 to 18 in '21 to '25 roughly, got no growth for it, right? The reason why Nik is emphasizing, I think, so much that the 16% is an outcome is the way we're doing it now is we're taking the strategy. We're taking the brands. We're taking the innovation to use the term the jobs to be done and then saying, actually, how much money do we need to extract the growth from the innovation that we've got available in this year, that year and the other.

And the outcome to that is 16%. The idea that suddenly without the right assets, without the right innovation and without the right time, I could just take 16, turn it to 18 and accelerate the top line more quickly, too simplistic, way too simplistic.

So we now need to be much more surgical to use the word about the investment that we make in different parts of the portfolio to get the return that we want. It's evolving as a methodology for us. It's all quite new, but the outcome of that is the 16% that Nik was talking about feels about right for the next 3 years, and we would actually destroy value if we were just spending more money on things that we know wouldn't return.

Yes. I mean the only thing I would add to that is, again, keep in mind, if you think about what you saw from an angle of what Christina laid out and what you heard in terms of the category strategies, right, we are talking about a more harmonized and standardized approach.

So if you also think about the spend that was there, keeping aside the nonworking element of the duplication and the waste that we had, there is an opportunity from scale and harmonization as you think about spirits and RTDs across those categories as well.

So I think you have to look at it from an angle that says back to the point, do we have the right assets and we're investing behind those assets with a returns focus. And clearly, if there's better returns and we can put some more in, we'll find the money, right? We're not going to not put the money in. But I think for now, we believe we have that.

Andrea from Bank of America. So 2 for me, please. An important lever stepping up your commercial execution in the U.S. is about reenergizing sort of the relationship with your distributors, and you referred to that in the presentation.

So could you talk a bit more about some of the changes you're doing, also how you're going to incentivize them differently to focus more on rate of sale and when are these changes actually taking place? And then a question on the balance sheet for Nik, please. You're maintaining the balance sheet target at 2.5 to 3x.

I mean this has been the target for many years at Diageo, particularly at times before COVID when top line was growing mid-single digit, Diageo targeting 5% to 7% EBIT growth.

So what's the thought process in thinking that is still the right target in a more difficult environment? And historically, when you've been towards the mid of that range, that's when that would have triggered buybacks. Is that the way to think about it?

John, do you want to talk... I can say... So look, in terms of our go-to-market.

So I would say we're very advanced in terms of our conversations. Look, the big thing is when I went to the U.S., I found that we have exclusive dedicated sales force, which I really, really like within our distributors and the distributor side of the house.

But they were pretty much focused on points of distribution. And so the conversation we've been having with our distributors is how do we take that dedicated resource and put them to work harder on not just getting distribution, but actually getting velocity and way of sales driving, whether that's in how we merchandise, how we do shelves, how we actually drive the package into people's hands.

And of course, incentives play a big part of that. I won't get into specifics because you'd appreciate that. And I think that's a really important shift for distributors. And I think it mimics what we're doing with our own internal model as well. That shift to distribution plus rate of sale velocity is going to be a really key unlock for us.

Balance sheet. So let me just remind you what I said. I said right now, we believe that 2.5 to 3x is the right leverage range.

We review that annually as a part of the organization with my treasury team and with Dave, we have a finance committee, but we also review that annually with the Board, right? So this is not a static number for now, we believe.

In the past, last year, when someone asked me, I said, does it really matter? I'm so far out of my range. Well, now I'm coming back towards my range, right? So it's a good problem to have for us to look at it. I'm not going to comment on what Diageo has done historically when they've got to their midpoint or what actions they've taken.

All we've said is this is a nice problem for our Board to have to think about once we're well within range, well, clearly, well within range could even be if we change it to 2 to 2.5x. I'm not saying we are. It's a nice problem for them to have to think about how we return cash to shareholders.

The priority of returning cash to shareholders is unchanged, right? So -- but I won't get drawn into timing or anything else. I don't know if you want to add into that.

Definitely not...

Chris Pitch from Rothschild & Co Redburn. Two parts to the same question, really, Dave. One thing I'd be really interested in learning more about is how you're changing the culture of the organization around planning and response.

I was really intrigued to hear about the idea of forecast bias, particularly positive. I'm a sell-side analyst, I empathize.

But Diageo has historically had a propensity for forecast bias. I was surprised to see in your sort of outlook that you've got the standard 2-point range across all the regions because the industry is more volatile than that. Are you planning more extreme scenario environments if U.S. stays down 3%, 5%, you know what you're going to do? Because mid-single digit is actually quite a narrow range to deliver organically.

And then the second part of the question is currencies are one of the structural problems in your business. What are you doing to reduce the currency volatility in terms of local sourcing, local production where it's possible, liabilities and so forth? Because you haven't talked about currencies all day, and that's ultimately what's quite often eroded the opportunity on the screen.

Why don't I take the first and you the second and Ewan, please feel free. Look, I think we are making quite a fundamental shift in changing what we're looking for in terms of operational discipline and delivery across the piece, giving you an end-to-end responsibility and being clear what value different parts of that end-to-end deliver in terms of that operational excellence is new in Diageo, right? So what we've talked about is what's the right way to make interventions, change the culture, invite the right behavior, right?

And one of the very easy ones is saying to those 23 go-to-market organizations, actually, what I need from you is a very, very, very good best you can do quality forecast. Don't play any games. I want to roll it. So now I ask them every month, what's a rolling 12-month by-month forecast, forget month ends, forget quarter ends, forget year-ends, not interested, what's the right.

So you are now. We will -- I will judge you, if you want to be like that, as a local Managing Director on your ability to read your market and forecast demand. What we think is a reasonable range is here. We've kept it really simple for the first intervention.

We know there's more volatility in different places. If I'm honest, I would say Latin America has historically been one of the more volatile places, but the improvement that's happened there been going on for longer, fantastic.

Elsewhere, we've got other challenges. So it's about picking the right measure, first and foremost, inviting a change in behavior, but where necessary, putting the right discipline and the guardrails in if that's not being responded to in the way that we would want it to be. But by being able to talk about the end-to-end process, by being able to give the data that shows actually why have we had all of this wastage in our supply chain and what's contributed, that invites the right conversation to happen.

So process by process, we've intervened never slightly differently in each one, but that's the exercise of how do we nudge the business to change. But the big thing is to give the responsibilities really clearly, which is why I talked about the operating framework earlier, right?

Currency. So firstly, there is a mention of currency. It's just in the appendix because I didn't want to bore you with it from an angle that, one, when you look at it, and I want to separate out 2 elements. I'm going to come back to transaction exposure in a moment and then translation exposure.

What we just put into the appendix over there is what we see at current spot rates. And right now, it's pretty negligible, right? But that will continue to evolve. But let me come back on translation in a moment. Let's talk about transaction for a moment. And I say that because when I came into Diageo and Dave and I are both very much aligned as we thought about this going forward is there was, one, a confusion of the 2, all right?

And we were actually -- particularly when we move to U.S. dollar reporting, we were actually hedging at cross ends with each other based on our supply flows or what was happening when you think about scotch moves and sterling, tequila moves and the peso and the dollar, right? So what we've done is really gone to a netting process to really make that much simpler.

But more importantly, with that netting process, we've also ensured that accountability lies in the performance management for each of the markets and the regions all right? So that means more actions being taken based on not just a budgeted rate of what you're seeing, but actually a monthly flow-through of what does that mean in terms of how transaction exposure is moving and how you're thinking about that from a competitive angle as well? And what do you need to do to be able to manage through that.

On the translation piece, we're not going to get into speculative hedging, all right? But what are the actions that we're taking, a couple of things that we've done, how are we looking at liability management and how are we looking at some net investment hedges to be able to reduce some of that volatility. That work is ongoing, but that's where we are.

Olivier Nicolai, Goldman Sachs. Two questions for you. Going back to RTD in the U.S., when would you expect to get the full distribution? And is it a critical element to improve your market share? And secondly, most of the leading brands in RTDs today are actually not necessarily linked to a spirits brand, and they are often owned by brewer.

How do you explain this? And I know you said no M&A, but would you need to do any small bolt-ons in the category?

No. Okay. So answer the last bit first. I think I'll give a marketing call and John, if you want to add something to this, please feel free. I think the way I see North America is, as Mark said before, we start -- we were one of the first, if not the first, to start this category.

We then backed away, deprioritized it for a number of reasons, doesn't matter it's history. I think, therefore, in North America, it left the space and others entered into it. And therefore, you get these [ new-to-will ] brands and you see the churn that is there in [ new-to-will ] brands.

Some of them are successful, a lot of them are very short-lived. I think the question for us is what is the opportunity in ready-to-drink, that consumer occasion when you think through the lens of our brands, right? What is it we have? We have fantastic, well-differentiated market-leading brands, which, by the way, most people on many occasions make into cocktails.

The opportunity, therefore, is for us to serve that consumer need ourselves in a very convenient way as part of that RTD movement and category. We've done it on some. We haven't done it on others.

We think that's the opportunity. The critical thing is that we show up in those categories using our differential strength, and that's our brands. And we won't do any other brands until we've done our brands. So I'm not saying there won't be new to world brands, but we've got a massive opportunity, as Mark showed up says, to actually be much better about giving consumers what they want with our brands.

Do me a favor at the breakout when we finally give you a drink, try that bullet old fashion he was talking about and see what we mean when we talk about real RTDs from spirits brands. That's where the growth is. That's where our brands sit. We just need to apply ourselves to it. I think in terms of distribution, John talked about it, it's definitely an opportunity.

Two things I would say, and then I'll ask John to add on to it is you should have got from everybody this idea that we now need to be managing RTDs as part of the Spirit brand. Historically, Diageo has split that, and it's particularly prevalent in North America given the 2 divisions that John was talking about.

And if you're not careful, you end up having sort of internal friction between the 2. So getting the brands together coherently, what John is doing in terms of the go-to-market organization will help us. Look, we've got great distribution on some. We've hurt ourselves with the quality issue we have in Casamigos, but we showed that we could get good distribution on that really quite rapidly.

So the capability is there. We could do more, but put the brands together, what John is doing in the operating framework drives the distribution and then the share comes from there, okay? Why don't you just pass it along. And then we'll...

Ed Mundy from Jefferies. I've got 2 questions, please. The first is around culture. I think in your final slide, you pointed to this importance of developing a very strong robust performance culture. I guess the question is, where are we in that journey? And has this plan been sold internally to drive that followership -- that's my first question.

And then my second one is a sort of more philosophical question around Diageo has been fantastic at premiumization over the last couple of decades. You're obviously pivoting a bit more to affordability with the small packs, with the RTVs, with some of the price -- selective price resets, et cetera.

You can do all of this with the same amount of A&P dollars. But do you need more salespeople? Or is it a case of giving your salespeople the right instructions and just doing more with the same?

Okay. Where are we in terms of culture? I think -- look, and you should ask people who have been in Diageo longer than I, and you'll have a chance over a drink to do that. I think the desire to have a performance culture, the desire to improve performance, I've been really very encouraged with what I feel inside Diageo.

People are disappointed that we've not been performing better over the last 4 or 5 years. There's been a first for change, but then there's a difficulty of making the change. So we're definitely at a point where we're going through. Most of it is behind us in terms of the go-to-market. But in Europe, we still got the consultation that I shared with you at the start.

So I would say we're in the early stages of building that performance culture. But the wind is at our back in terms of what it is people want. We just need to be clear and support that performance culture, and that's what all the things this morning were about. I -- when you talk about the -- so I look at the portfolio you just described, and that feels much more balanced to me than the one you described before.

As much as I love the premiumization and trust me, we won't step away from it. Actually, the portfolio of all the things you mentioned feels more robust. And actually, I don't worry at all that we don't have the money we require to be able to do that. And I think if you go back to Mark's presentation, he talked about those focus markets where -- and in the Guinness presentation, certain markets, we are putting more feet on the street.

Depending on the model, [indiscernible] in Europe has put more feet on the street, be it Guinness or indeed some of the on-trade -- in John's area. So where it returns and where it adds to that portfolio, if that's the right way to do it, that's the right way to support the brand. It's not A&P in the way that we traditionally talked about it. But the flex is there in the portfolio and the money is there in the 16% that Nik highlighted.

Sanjeet Aujla from UBS. Two for me, please. Firstly, John, when you diagnosed the issues on Crown, Smirnoff and Captain Morgan, did you ever think that the brands are taking too much pricing versus their competitive set? Or are you happy with the relative price positioning on those brands? And it's just more a case of packaging and other things to fix?

And my second question is just going back to the medium-term algo. Dave, and Nik, if you're exiting by fiscal '29 with 3% organic sales growth and by that point, the cost savings are done, is the business capable of still delivering mid-single-digit organic EBIT growth and EPS out of that?

I love it. We give you 3 years and you want those...

Yes. Look, I mean, as I said, I think Casamigos was the outlier where I think we definitely took too much price COVID. We, of course, corrected that. I think in terms of the other brands that I spoke to, look, we're in 7-, 8-year declines, I always start with the proposition, right? And that is what we're getting because that's really what the kind of core DNA of the brand.

And so that's what we're going to overhaul. But then much more than just that into the packaging into fundamental architecture of the brand, flavors -- we got carried away on [indiscernible]. I feel we got too focused on flavors and Crown to the detriment of the core. So if you noticed, I haven't mentioned price, Sanjeet, on any of those points.

And that's why these brands need a bit of a fundamental reset. And that's why we've kind of given the expectations that we've given. I think that's much more important on the longer-term decline that I've seen.

If I build on John's answer, look, we've been trying to leverage all of the capabilities of Diageo into North America.

So we had an exec meeting -- our first exec meeting together was in North America, but we deliberately did it in a way where every person of the exec went to North America a couple of days earlier, sent -- I invited the business group presidents to go to different parts of North America.

Everybody else with their functional teams, spent some time and then come and have a session with John so that when John was saying, this is what I found, this is what I'm thinking, all of the exec were able and knowledgeable about North America.

So we've never done that as a team before, but how do we all lean in and help John? That led to a second session, which Christina and myself, Hannah and John did with the team in North America, which the Diageo phrase for is a tear down, which is basically take the mix apart from the shelf back and look at every element.

So we sat in and we did it. And for the 3 brands you're talking about, and that was product quality versus competition, price versus competition, proposition versus competition, packaging versus competition.

So really took it apart bit by bit by bit by bit. And what John is sharing with you in a summarized phrase is saying actually, it's not a price issue per se. It's a proposition issue. We've lost some of that focus, and we've not invested in the other elements of the mix commensurate with what we want at a time when there's been inflation in the category.

So he's going to go back and fix the things which from that tear down look like being the big issues and price wasn't one of them in those 3 brands. Okay? Your crystal ball, my crystal ball is 2025...

Yes, but why? If we are changing the way we are fundamentally looking at the spirits category in the premium beer category, spirits plus RTD, full portfolio, strong OBPPC, strong RGM capabilities, continuing to build on RGM, being surgical with where we see opportunities.

Here, these are the interventions to actually broaden our portfolio. I think going forward, there will be opportunity as we're much more competitive. We're much more customer-centric to be able to continue driving value. And what does that mean with that top line growth, even if it stayed at that level, yes, we should be able to support the mid-single-digit operating profit growth.

And keep in mind, productivity never ends. What we've done is some big interventions with Accelerate and now with the operating framework, right? That doesn't mean the mindset of continuing to improve and what we can drive from an efficiency and effectiveness purpose goes away. Is it going to be at the same scale? Absolutely not.

Indeed. Trevor, you have a microphone. You've had your hand up for a while, but not a microphone. Here we go.

Thanks, Dave. Two questions here. One is of your 3 immediate priorities, hear a lot about #1, a lot about #3. My impression is slightly less on #2. You've touched on it indirectly around customer service levels and things, but a little bit less color there.

If that's a fair impression, maybe why is there more to come down the road on priority 2? And second question is, you've highlighted you've been through an awful lot very, very quickly. And there's probably an awful lot of hurt around. Are there things that you can do to help the organization heal?

Okay. Two things. I think when -- you're quite right. We've talked more about 1 and 3 than we have about 2 because when you think about 2 -- when I think about 2, Trevor, and how I want to have conversations with our customers, the conversation needs to be what are our category strategies.

How do we show up in the U.K. at Tesco and Sainsbury's and say, actually, this is what we are thinking about your category. We've never done that to you before. They've never looked at us before.

So there's a real shared understanding of the category that needs to be built. So Dayalan and I have been to both of the 2 customers I've talked to you about. We've talked to them both about the fact that we're going to come.

But really, we need -- what you've seen from [ Christine ] is we have to have a point of view about the category. We have to have an innovation plan for the next -- not just 6 months, but the next 3 years, and I talked about that earlier, before we can even engage top to top about that category.

So it's there, but it's in time. We've got to get it -- I don't want to show up when we're not ready because that will just be a false start. I think in immediate terms, it's actually how do we service our customers because to be honest, we used to have this rule in Tesco.

We used to have this chart in Tesco, which is if you were outside the parameters of service, I don't want to talk to you about any innovation. I don't want to talk to you about anything about category development because if you can't do the basics now, I don't want to talk to you about what wonderful things might happen tomorrow.

And I think we have to make sure we earn the right from the service of the business today to go and have that conversation with them tomorrow. There's a lot -- Ewan was very open. There's a lot of capability information that we need to build inside Diageo before we're going to front up with people who are very data-rich and very immediate in what they're going to need from us, and we can't disappoint when we go.

So it's about timing, not a change in focus. Look, I think your second question, there is a lot of hurt, and it's a big change for Diageo. It is a big change for Diageo. So we shouldn't -- what have we tried to do? Trevor, look, you would -- you've seen little bits here and there.

But we deliberately chose not to make any announcements ourselves about the changes that we were making. We've very deliberately at every stage, been very transparent with all of our people about the diagnosis of what the case for change was about the fact that we were going to have to change.

We then walked them through all of that. We were very open about the selection processes, and we've been very, very open. So now everybody -- if you ask people, people appreciate that. But when you come to the changes and the decisions, it's hard, right? It's really hard.

So have we been as appropriate as we can be in the way that we thought about that restructuring? Yes, we have. Are we doing everything we can to help people through that transition? If it means they don't have a role with us, what else it is they could do.

As I said to you before, the feedback we get universally, but don't just check with me, check with the others is nobody is saying you're doing the wrong thing. I don't like it's happening to me, but you're not doing the right thing. Everywhere else in the world, I get myself into trouble I have to say.

And in my experience with these things, being very open, being very honest, but being very quick is ultimately to the benefit of our colleagues. And if I think about Latin America, if I think about North America, it's been an engagement. It's true and it moves on, it's quicker.

In Europe, the consultation process is really hard on our people. And I know it's supposed to be there to protect. But actually, when you look at the stages, and there's very little we can do in that time period apart from respect the process that's there.

The thing that we are doing and the balancing is we -- for the people who are staying, we're talking about that purpose and the business we're going to build because there's a time when you have to focus very closely on the people who are leaving the organization, but there's also a time when you have to be very clear about the motivation of the people who are staying.

And so trying to get that right. We are -- and again, we've done a lot of communicating. It's very open. The thing I'm enjoying is the fact that Diageo colleagues when I started, people would say, you'll never get anything -- nobody will ever ask you a question, we need to plant some, right? Nobody is holding back, right? The feedback mechanism is working really very well.

So I know where the problems are and actually, that we know we're getting that feedback. In most places, that's done already. In Europe, we're still in that consultation period.

So we're doing what we can and trying to be as empathetic as we can as we walk through the change. Yes. One at the back and one here. We've gone over time, but given we've still got 8 minutes to the end, we'll try and keep going, okay.

Yes. Sarah Simon from Morgan Stanley. I've got 2 very unrelated ones. The first one is you've been quite explicit that you think really a cyclical issue.

How do you explain the strength of [indiscernible] if there isn't a desire for drinking less? And should we interpret the fact you haven't talked about ritual or Seedlip or anything as those are now deemphasized? And the second question is around exceptionals.

Because if we look back at Diageo over the last 10 years, this constant restructuring and write-downs and cash outflows -- in your remuneration, will you be remunerated on a pre or post exceptional basis because ROIC goes up the year after you've written something down. So I'm interested to know how you think about the impact or how you align with shareholders on that.

Okay. Why don't I take the first, you have a go at the second because the -- look, I think you've got different things going on.

So let's just scale this very openly. When you look at no alcohol inside Diageo, 94% of it is Zero Guinness. So if I look at -- it's important we have it available. It's part of a category portfolio, so it's not deprioritized where it's relevant, it shows that it's part of the category.

But non-alc spirits of spirits is less than 1%. So it's there. We have it there. We will continue to it, but it will be proportionate to that opportunity. I think what Guinness Zero is benefiting from is the power and the strength and the cultural relevance of the brand.

The quality of the Zero versus, let's call it, the parent brand is exceptional. And that's not us talking that consumers feeding back. So people are using -- they're still getting the taste and the experience they enjoy and they can moderate it and they can stripe it and they can do things with it.

So I think we're talking about 2 very, very different things. But the bit that we've got to keep reminding ourselves is non-alc spirits is still really very small. It's growing nicely, but it's growing from a very small base in a very limited geography. And so we just need to be proportionate in the way that we think about it.

To your question on incentives, we will not be incentivized to actually impair things and bring our ROIC down. So just to be clear, if it's an in-train LTIP award, we would actually neutralize so that would not be a benefit for a payout. Clearly, as you set the new targets, you would have a new invested capital base going forward, right? But that is on your new base going forward. So no incentives for that.

One more at the back, and I'm going to give you the last question.

Carlos Laboy at HSBC. We've heard a lot about demand creation and about capital allocation. That was very helpful. But I was hoping you could expand a little bit more on demand fulfillment and about the reinforcing loops between your firm and third-party fulfillment distributors, right?

The culture you're trying to drive in the organization, how that plumbing works, how that gets down to how those relationships are managed and influenced and maybe a little bit about the philosophy that you have about how you see that moving forward. All right.

Why don't I start and please add in terms of -- look, in that organization that we shared with you quickly at the start, you should have known that in the local organization, it's a customer service director. It's not a supply chain director. That's different.

So at the place where the customers buy and where we service, the focus of all of that resource is on customer service. Ewan, I think, gave you the example in the U.K. that actually when we look at what the loss is, actually, it's that execution that's the problem.

And I know because I've been involved in the U.K., one of those was very specifically logistics and delivery routing and what have you. In the old model, that wouldn't have been a priority for that local supply chain director. In the new model, the customer service person absolutely needs to be fixing, working that out.

And if it's through a partnership, through the partnership, if it's totally wholly owned, then in our own operations. So whether it is a third party or whether it's ours, the responsibility for the quality of those fulfillment type arrangements with a local customer service director, he or she is responsible for customer service, particularly when it comes to that final mile fulfillment. Okay. 2 more questions. Two gentlemen down here and you can close -- you got a mic.

Laurence Whyatt of Barclays. Dave, you talked about a number of price repositionings that we've seen on a number of brands at Diageo and the success that that's brought. How can you be confident that, that price repositioning boost is going to be sustained after we've seen a sort of initial reaction from consumers from that price positioning? And then, Nik, when you joined Diageo and the original medium-term guidance was removed at that time, I seem to remember you talking about the lack of visibility in the market at the time and why it wouldn't make sense at that time to put a medium-term guidance in place.

Could you compare how you see the visibility today versus how you've seen visibility in the spirits market over your time at Diageo?

So if I start, I think, look, when you get into the details of the interventions we're talking about, what you see is that most of the things that we're addressing are either, let's be candid, a place where we lost our discipline in relative pricing to the competitive set through some of the cycles that Hannah was talking about, and we've lost volume as a result of that.

By going back and addressing those price positions, we've gone back and won so far the volume that we used to have, right, when we had the relative prices to the competitive set in the right place.

Hypothesis, we'll see over time is that actually having won that volume back, you keep that volume because you've kept the relative price in the same way. Easy example because we're in the U.K., bells versus [indiscernible] anybody I speak to in Diageo, Paul what anybody who's ever been, bells and grow should be here, right? [ Helen ] smiling because he's the one that inherited the fact that suddenly we got a place where bells is here and [indiscernible] is here, and we lost volume, right? Don't know all the decisions that he wasn't there, but that's where we are.

We put it back at that right price. The volume growth on Bell is significant. Will we keep that volume, the market here in me says we will, right? But time will tell.

So 2 things I would say to you. When I came in, I think, one, we had an algorithm that just no one believed in.

So it was more important to withdraw that than keep that. It wasn't just about visibility. It was clearly, even if we had all the visibility, we weren't going to be making those numbers. So that was a real reason to pull that away because that just literally dominated the conversation, right? I think from a visibility perspective, I think there's a couple of things I would call out.

One, I think during the course of for the last 18 months or so, there's been a lot of work that's been done on the rest of world, and I'll come back to North America. And I think everything that we've been doing from a portfolio expansion perspective, from how we're thinking about that business without that margin percentage obsession, et cetera, you've seen how the rest of world has performed, right? You've seen that over the last 18 months or so, right? And I think we have much better visibility when we think about those markets and what can be delivered there, right? North America, I don't think we have better visibility.

And I think what Hannah laid out for you is the most important piece of understanding what's happening with the consumer and what's causing that stress, right? Marry that up with how we see some of the self-inflicted issues and what we can do to try and control those and change, right, are things that we have within our control, right? So I think it's not so much about having this crystal ball and the visibility of the market. I think better data on the consumer side and understanding and a better understanding of our issues in North America and what we can go after. Does that help?

Very good. Ladies and gents, thank you very much. We're going to cut it there, bang on 6:00. Sorry. No, you're right. I did -- it was flashing at me. I was under pressure to the 6:00. Please go ahead. Sorry.

Gen Cross from BNP Paribas. I just actually wanted to follow up on Chris' earlier question about FX. Because I guess one of the historical attractions of the Diageo investment case is actually strong conversion from the organic numbers to your hard currency numbers.

And if I look at your kind of new medium-term algorithm, it's clearly a bit more driven by rest of the world, which obviously can be a bit more inflationary.

So I just wonder if you could talk us through how you think about the kind of drop down from -- as you exit in FY '28, '29 when some of those hard currency cost savings are maybe reducing a little bit, how you're managing the business between aiming for organic growth versus aiming for dollar growth? And linked to that, just in the very simplified annual incentives that you have, is the revenue and EBIT, I assume that's based on organic numbers.

So it's organic numbers, but including transaction exposure, right? And quite honestly, right now, as I said, we're trying to minimize what we can do from a net investment hedge perspective, liability management on translation.

Translation risk does not go away, and we would not be speculative and start hedging for that, right? So we will continue to take the right actions to protect hard currency savings -- hard currency delivery of earnings.

But to Dave's point, I mean, listen, hypothesizing now beyond '29, right, is a little early. We're going to deliver the savings. We feel good about what we can do over the next 3 years, and we'll continue to refine our view on how do we minimize the volatility through translation.

Okay. I'm going to cut it there. We're just past 6:00, so we're 3 minutes late. Ladies and gentlemen, a couple of quick things, if I may. First and foremost, thank you very much.

We brought you in. We sat here in the room. We've given you a lot in the last 4 hours. The intention was to try and be as open and as transparent as we can be about what we know, what we're trying to do in a way that helps you think through the investment case.

So rather than just present at you to try and think about the questions you had. We hope it's been useful. I'm sure, hopefully, you'll stay for the innovation showcase downstairs and a drink thereafter.

Can I just put on record my thanks to the exec team who with me talking, we've been busy in the first 6 months. We've all been very busy. And as a team, I'm very delighted that we've got ourselves here. We are all very clear we've got a lot to do. But please, please, please take the opportunity to talk to them in the showcase.

Two practical things, if I may. When you go downstairs, you need to take all your things with you because this room will be stripped while you're gone. So please don't leave anything up here because who knows where it might end up, right? So take your stuff with you.

Second thing, when you go downstairs, please be disciplined and make sure you don't just stop at the Guinness tap, okay? So please go have a look at all the innovation that's down there, and we'll see you back here in 30 minutes. Okay? Thank you very much.

Good morning, ladies and gentlemen, and thank you for joining us this morning. Nik and I are here to share with you the results of fiscal '26 for Diageo -- and I'd also like to say something about the Capital Markets Day, which is taking place in our office this afternoon. We've issued today 2 statements, 1 to cover '26 and the other to cover Capital Markets Day. And I think the way we'll do this, if it's okay with you, is I'll ask Nik to walk you through the results of last year. And then I'll come back and share a few thoughts as we get ready for the Capital Markets Day this afternoon. Nik, over to you.

Thank you, Dave. So fiscal '26 has been a mixed year with good momentum in Europe, Latin America and Africa, but with challenges in North America and Asia Pacific that we've talked about through the year. We're focused on becoming more competitive in the U.S., and we'll share more details on this later at our Capital Markets Day. We have delivered strong free cash flow, which has enabled us to reduce leverage at the end of the year. We have made good progress on the 3 priorities that Dave set out at our interim results and the implementation of the new operating model is already well progressed. The savings from the actions we are taking will allow us to invest without reducing operating profit, and we look forward to expanding and sharing more detail on this later today. Now let me walk you through our results.

In the context of a continued challenging macro environment and industry backdrop in many of our markets, but in particular, U.S. spirits and Chinese white spirits, organic net sales declined 2%. However, our group operating profit increased 2%. Notably, excluding the impact from Chinese white spirits, organic net sales would have declined around 0.5 percentage point with organic profit growth around 4.5%.

For Asia Pacific, excluding Chinese white spirits, net sales would have been up low single digits. Europe, LAC and Africa delivered strong growth. Our focus on cost savings through the Accelerate program supported organic operating profit and offset the impact of lower gross profit due to the mix of market growth. EPS pre-exceptionals was up 0.7% with the positive impact of organic operating profit growth and favorable foreign exchange, mostly offset by lower fair value remeasurement versus the prior year as well as lapping the impact of the disposal of our businesses in Ghana and Nigeria. Our strong focus on cash resulted in free cash flow delivery of $3.2 billion for the year, $463 million up on last year.

We also recommended a full year dividend of $0.50 per share, equating to a 30% dividend payout ratio in line with the dividend payout policy we moved to earlier this year of 30% to 50%. Turning to the regions. The biggest challenge was an 8.4% organic sales decline in North America, driven by softness in our U.S. spirits performance, particularly in tequila, which declined approximately 21%. This was driven by both Casamigos and Don Julio with tough comps for Don Julio and down trading within what has been a weaker category.

John will talk to this later at our Capital Markets Day. Organic growth in Diageo Beer Company was good at around 4%, led by both Guinness and Smirnoff RTD. Moving to Europe. Organic net sales increased approximately 3%, driven by double-digit growth in Guinness in Great Britain and double-digit volume growth in Raki, Scotch and Gin in Turkey as a result of increased distribution and visibility. The continued impact of weakness in Chinese white spirits adversely impacted sales in APAC, resulting in organic sales down around 6%. The negative impact of Chinese white spirits on region net sales was circa 8%. In India, continued momentum in Prestige & Above segment brands, combined with locally inspired flavor innovation on Smirnoff and successful format innovation on Royal Challenge contributed to strong results.

This momentum enabled India to deliver organic net sales growth of around 7% despite the adverse impact from the excise policy changes in Maharashtra, which especially impacted net sales from lower prestige price points. In LAC, we saw net sales growth in most markets with particularly strong performance in Brazil and Colombia. Notably, the second half in Brazil saw a recovery in consumer confidence following the impact on the industry in Q2 of counterfeit alcohol incidents, which was particularly pronounced in the on-trade.

Across Africa, we saw broad-based net sales growth across the region with strong double-digit growth in South Africa, driven by RTDs and also strong beer performance across East Africa. Let me now take you through the movement in net sales for the year in more detail. Reported net sales declined 3%, driven by organic sales decline and the adverse impact of acquisitions and disposals. This was only partly mitigated by favorable foreign exchange and the hyperinflation adjustments. You'll note we have presented the offset between the outsized hyperinflationary adjustment relating to Venezuela and the foreign exchange impact, which are due to the hyperinflationary accounting and our foreign exchange reporting approach.

This presentation allows a clearer picture of the movements within organic growth, excluding this impact. Organic volume growth declined 0.4% as good volume growth in Africa and LAC was offset by volume losses in NAM and APAC. Excluding the impact of Chinese white spirits, volumes were broadly flat. Europe and LAC delivered positive price/mix with 1.6% decline at the group level, driven mainly by the adverse impact of Chinese white spirits weakness and the decline in U.S. spirits, primarily due to tequila, as I talked earlier.

If you exclude the impact of Chinese white spirits, price/mix would be down approximately 0.5 point. The negative impact from acquisitions and disposals was due to the disposal of Guinness Ghana at the beginning of fiscal '26 and the disposals of Guinness Nigeria, which completed in September 2024 and Ciroc, which completed in the fourth quarter of fiscal '25. Turning now to the movement in operating profit for the year. Reported operating profit before exceptionals declined 0.4% with organic operating profit growth and favorable foreign exchange offset by the movement in acquisitions and disposals and lower fair value remeasurement.

Gross profit declined $506 million organically with adverse product mix, cost inflation and tariffs being only partly mitigated by cost efficiencies. Organic profit growth was supported by savings from Accelerate from more efficient A&P and overhead spend, partly offset by lower gross profit. Marketing spend was lower in part reflecting Accelerate savings combined with deliberate prioritization and being more choiceful in how and where we spend. As I said consistently through the year, our commitment to investing in our brands for the future remains unchanged.

Accelerate also contributed to lower overheads with savings reflecting optimized IT costs and strong cost controls across the corporate organization. I am pleased that we delivered $514 million or circa 85% of the Accelerate program in fiscal '26. As mentioned, the savings come from a focus on driving efficiency and effectiveness from A&P investment, supply and overheads. You will have seen some of the detail in the earlier slides on the A&P savings of $210 million as well as $130 million in lower overheads. This was also supplemented by circa $180 million from supply savings and also $20 million from trade spend efficiency. You may remember that the latter was something we had said would take longer to come through and benefits the P&L through net sales.

Going forward, we will update you on supply chain savings and the operating framework as shared separately in our CMD release and the event later today. Moving to cash. Free cash flow increased $463 million versus fiscal '25 to $3.2 billion. This strong year-on-year delivery was driven by a more disciplined investment in CapEx and maturing stock, along with lower tax payments. This result also includes a circa $125 million one-off investment in working capital to increase resilience through the implementation of our new S/4HANA ERP system and, to a lesser degree, to mitigate risk arising from the Middle East conflict.

The cash outflow from maturing stock through the year was minimal as we continue to optimize investment with more frequent and dynamic reviews of our mid- to long-term maturing liquid requirements. CapEx was approximately $1.2 billion, a decrease of about $370 million on last year, reflecting a disciplined approach to investing in projects, including Guinness production capacity expansion, supply agility and digital infrastructure. Tax paid was lower, partly due to a historic tax refund of circa $100 million.

EPS pre-exceptionals increased 0.7% on last year to $1.653, mainly driven by organic operating profit growth, partly offset by lower fair value remeasurement. There was also some offset between favorable foreign exchange and the negative impact of the disposals on reported operating profit I mentioned earlier and higher finance charges. I would like to spend some time on exceptional operating charges given their magnitude. I'll take you through the detail, particularly related to impairment, but also the work on restructuring.

During the period, we incurred impairment charges of circa $1.5 billion and restructuring charges of circa $0.9 billion. The impairment charge included 2 large items. Firstly, a $786 million charge related to the Turkey business and the goodwill from the Mey Icki acquisition and several brands. The Turkey-related impairment was largely due to the impact of hyperinflationary accounting on carrying values relative to the inflationary environment as we look to be more competitive on shelf. As you would have seen in our fiscal '26 results, we're pleased with the on-the-ground performance in Turkey despite the challenges of operating in a high inflationary environment. Then the other sizable amount was a $287 million charge related to the impairment of the Don Papa brand, which was impacted by the decline of the rum category in Europe.

The restructuring charges are mainly related to the implementation of our new operating framework with $752 million in fiscal '26 and the balance of the restructuring related to supply chain and Accelerate program, which will now be closed off. This included impairments related to our supply chain assets as we took corrective actions to rightsize our capacity based on industry outlooks and improved returns. Moving to the balance sheet. We closed the year with lower net debt at $20.5 billion. This is $1.4 billion lower than at the close of the prior year, driven by strong free cash flow delivered through fiscal '26.

This reduction in net debt is reflected in our leverage ratio, which closed the year at 3.1x, down from 3.4x at the end of fiscal '25. As a reminder, we had guided that the completion of the sale of our 65% shareholding in EABL announced in December, is expected to delever our balance sheet by circa 0.25x and to complete in the second half of calendar 2026. In addition, in March 26, USL announced the sale of its ownership in Royal Challengers Bangalore, and the completion process is progressing as planned, which should also result in around a 0.1x reduction in net debt to EBITDA.

At this time, I would normally take you through guidance, but I will be doing that later today at the Capital Markets Day. With that, I'm going to hand the call back to Dave.

Thanks very much, Nik. If I look now to the Capital Markets Day this afternoon, as you will have seen in the release, I'm very happy to say that the 3 priorities that we set out earlier in the year of building relevant brands and competitive category strategies, a complete focus on the customer and our channel management and a more agile and competitive operating framework have laid a really very firm foundation on which we'll be talking more at the Capital Markets Day this afternoon. I suppose I would point to the changes in the operating framework because they trigger quite a significant restructuring charge for Diageo. The total restructuring that we'll talk about in the Capital Markets Day over 2 years is a $1.2 billion restructuring plan.

$1.1 billion of that relates to the operating framework changes and $100 million or so is related to the supply chain. The savings from those restructurings are around $1 billion, $850 million of that is in the operating framework and $150 million of that is in the supply chain. These savings are significant. They're very important as we chart the turnaround of Diageo. The savings will allow us to invest in innovation selectively where we need to improve our competitiveness, but they also allow us to do so without needing to reduce the operating profit, and that's something we'll talk much more about later today. A restructuring program of this size obviously has very significant impacts on Diageo colleagues. And I'd like to put on to record my deep appreciation for the way the Diageo colleagues have engaged with this change program, most of which has been communicated throughout the business a month or so ago. So thank you for listening to the call. Look forward to seeing many of you this afternoon.

Hello, and welcome, everyone, to the Diageo plc Fiscal '26 Q3 Trading Statement. My name is Lucy, and I'll be coordinating the call today. [Operator Instructions]. I will now hand you over to Sonya Ghobrial to begin. Sonya, please go ahead when you're ready.

Thanks, Lucy. Good morning, everyone. Welcome to Diageo's Fiscal 2026 Q3 Trading Statement Call. I'm Sonya Ghobrial, Head of Investor Relations, and I'm joined this morning by Sir Dave Lewis, Chief Executive Officer; and Nik Jhangiani, Chief Financial Officer.

Just a quick reminder for those on the call that in the discussions today, the company may make certain forward-looking statements, including those that refer to our estimates, plans and expectations. Please refer to this morning's release for more detail, including factors that could lead to actual results to materially differ from those expressed in or implied by any such forward-looking statements.

Hopefully, you've all seen this morning's press release, which can be found on our website. For those listening, we'd like to ask a question, please use the dial-in details included in today's press release. Also, if I could ask if you could limit to one question per analyst, we can hopefully get round to everyone. First, let me hand over to Dave for some brief opening remarks.

So, thank you very much, indeed, and good morning, everybody, and thank you for joining us today. I'm joining the call from the States, Sonya and Nik are in the office in London. And before I pass over to Nik to take us through the trading update, I want to say a word about the upcoming Capital Markets Day. You would have seen in the release that we're intending to hold the Capital Markets Day on the 6th of August in the office in London.

The work on the strategy update is progressing well as is the redesign of the operating framework. There's lots of work for us still to do, but we're confident that we'll have that complete and ready to share with you on the 6th. So the plan at the moment is in the morning, we'll do a short full year trading update. And then in the afternoon, invite you into the Diageo HQ and share with you that strategy update and any of the redesign of the operating framework. So with that, Nik, I'm going to hand over to you for the Q3 trading update.

Great. Thanks, Dave, and good morning, everyone. Thank you all for joining us today. I'll walk through our results for fiscal quarter 3 of '26, and then Dave and I will answer any questions you might have.

So let me start with a quick overview of the top line trends. In the quarter, organic net sales were up 0.3%, driven by a volume growth of 0.4%. We saw strong growth in Europe, LAC and Africa, all up at least high single digits, aided in part by the timing of Easter and sales into the trade as they get ready for the upcoming FIFA World Cup, particularly in LAC.

In North America, organic net sales declined high single digits, reflecting continued U.S. spirits weakness. Asia Pacific net sales declined slightly with weakness in Chinese white spirits, offsetting low single-digit growth in international premium spirits and some benefit in the region from the later timing of Chinese New Year.

Our progress towards increasing financial flexibility and strengthening our balance sheet continues. We saw continued momentum with our Accelerate program and are on track to deliver circa $300 million of savings by the end of fiscal '26. The announcement in March of USL's sale of its Royal Challengers Bengaluru Cricket Club as well as the expected completion in the second half of calendar 2026 of the disposal of our EABL shareholding in Africa will support our focus on deleveraging. Our guidance for fiscal '26 is unchanged from what we shared in February at the half year results.

Now moving to reported net sales. This was up 2.3%, with a notable impact from the positive hyperinflation adjustment, which was partially offset by the negative impact of disposals, including Guinness Nigeria in Guinness Ghana Breweries and the limited impact from foreign exchange. As indicated earlier, organic net sales growth of 0.3% comprised of positive organic volume growth of 0.4% and slightly negative price/mix. Notably, price/mix was largely positive across all regions with the exception of U.S. Spirits and Africa.

Now getting into some detail on net sales across the regions. In North America, organic net sales declined 9.4% as a result of soft market conditions and the need for a more competitive offer. This decline was largely due to U.S. spirits down 15.4%, weaker than depletions declined by circa 5%. As Dave communicated in our press release, actions are already underway to address this.

Although NAND price increase increased by 0.5%, this was driven by a one-off item in Canada relating to a favorable resolution of a commercial terms agreement with our largest customer. Our underlying NAND price/mix was negative largely due to adverse U.S. spares mix. U.S. Spirits net sales were impacted by lapping tough comps last year due to the pre-tariff pull forward of imports to distributors as well as tequila restocking. We did, however, also see some shipments benefit from distributor buy-in ahead of FIFA World Cup.

Tequila declined double digits, driven by tough comps from prior year, competitive pressure and continued category softness. Diageo Beer Company, net sales grew 9.1%, led by both Smirnoff RTDs and Guinness, which continued to perform strongly. Europe saw a positive impact from Easter timing, growing organic net sales 8.8%.

Of note, the continued strength of Guinness -- in Guinness -- of Guinness Great Britain and Ireland and good performance across spirits, which was led by MENA, Central and Eastern Europe and Turkey. Asia Pacific organic net sales declined 0.8%, driven by weakness in Greater China, with some performance benefit from the later timing of Chinese New Year, as I indicated earlier.

In Greater China, Chinese white spirits declined just over 20%, reflecting reduced consumption primarily due to market policy, impacting the region's net sales by circa 3% and group net sales by 0.6%. India was impacted by the Maharashtra excise tax increase. Excluding Maharashtra, India grew high single digits. LAC also benefited in the quarter from the buying ahead of the FIFA World Cup as well as Easter timing to deliver organic net sales of 16.2%. Scotch performed well across multiple markets, and Brazil led the growth of RTDs.

Finally, Africa delivered solid 17.1% organic net sales with double-digit growth in both East Africa and Southwest and Central Africa. Innovation with Kenya Cane was also a positive contributor as was Smirnoff Ice in South Africa.

Moving to our outlook for 2026. We reiterated our fiscal '26 guidance shared with half 1 results, namely for organic net sales down 2% to 3% and organic profit growth flat to up low single digits. We continue to expect free cash flow of circa $3 billion after exceptionals related to the Accelerate program but before an approximately $100 million one-off adjustment for inventory build at year-end to cover implementation of the S/4 HANA ERP system at the start of fiscal '27.

The other financial guidance for fiscal '26, which is also unchanged, can be found in the appendix of the slides. As Dave said in today's release, we are mindful of continued geopolitical uncertainty, including the impact of the ongoing conflict in the Middle East on energy, supply and distribution. As you would expect, we continue to monitor developments here, and we will ensure that we do the right thing to protect our business and build further resilience for 2027.

This could include the buildup of additional inventory through advanced production and shipment of business-critical SKUs. Finally, whilst we welcome the news on scotch and tariffs, this will likely have minimal impact, if any, on fiscal '26 and is more relevant to the next year. With that, let me hand back to the operator to open the line for your questions. Thank you. Operator?

[Operator Instructions]. The first question today comes from Simon Hales of Citi.

I wonder if you could talk a little bit more about some of the actions you've been taking perhaps since the H1 results when we last properly met to put the group on a thermal footing, especially perhaps in the U.S., I mean you say in the statement, Dave, that there have been moves to make the business more competitive and those moves are underway. Where have you taken perhaps further price reposition action on Casamigos in recent months? And is there any early data on the consumer response to those moves that you can share with us at all, please?

Yes, sure. So I mean I think if you look at it, it's very much in line with what we've been referring to, which is really being able to continue testing the elasticities on Casamigos. As we had indicated to you, we have already initiated some of that work in Florida with positive results. And across a number of the states, particularly where we want to be able to test this through the cities in which the World Cup will be taking place we're initiating actions there as well. The early results are clearly positive. We will continue to monitor that. Remember, these take some time before they show up on shelf but we will continue to monitor those as we go forward.

I think the other piece would continue to be around how do we also look at the entry point tequila of Astral. And how do we also ensure that we've got the right price tiering with Don Julio as we bring the Casamigos pricing more in line as well. So a number of moving parts, but one that we feel is the right approach to give us some good early indications, and you'll see much more of that continue into '27. Dave, I don't know if you want to add anything on to that?

No, Nik. I think that's right. I think we said at the half year that we knew that it would take us a little bit more time to have the impact in North America that we wanted to, where we can be surgical. We've been surgical, and Nik talked about that mainly around Casamigos and the World Cup. I think there's a deep piece of work going on to understand the underlying competitiveness of the business, and that -- we'll share that with you when we update the strategy.

The next question comes from Celine Pannuti of JPMorgan.

My question is on the outlook. And obviously, Q3 has come with a better-than-expected results, but as well with moving parts, including Easter. You mentioned that Nik and FIFA and I don't know whether there was some sell-in as well in Middle East. Is it possible to have an aggregate view of our value of what the impact has been on Q3 and what you are making for Q4 when you decided to reiterate the outlook and maybe my question is underlying performance.

It seems that the U.S. you are still seeing challenging market. But outside of the U.S., do you think that the overall momentum in the market has been better and whether that as well could have a bearing on Q4 performance?

Yes. Celine, listen, obviously, a lot of moving parts. So I'm not going to quantify what that phasing impact is. But clearly, you can see that with our reiteration of the guidance that we feel strong about the continued momentum, as we've said, in Europe, LAC, Africa, whether the underlying fundamentals outside of the lapping issues and/or the phasing issue continue to be strong.

And I don't think this is a continuation of what you've seen through the first half as well. Clearly, U.S. more challenged. And as I think Dave just mentioned as well, we will reveal a lot more beyond just Casamigos and tequila in terms of how we're thinking about a U.S. market positioning with a more competitive offer as we look forward and more of that will come in August.

Listen, I think the positive is we're still trying to manage what we can manage and control within the U.S. And I think the call-out I would make to you, which is a continuation of what I had said at the half year, our depletions are tracking ahead of what we're trying to do with net sales. So we're also trying to make sure that we're managing our inventory levels into distributor. Obviously, clearly, the outsell from retail is a little more challenging given the softer consumer environment, but one that we will continue to monitor.

So overall, I think we're continuing to see good momentum, as I said, in rest of the world, Chinese white spirits, you will see that normalization just given what we'll be lapping as we look forward. And U.S. will continue to talk about a more competitive strategy when we update you in August.

The next question comes from Mitch Collett of Deutsche Bank.

Just a quick one on the factors that would see you land towards the top or bottom of the range for guidance, both on sales and operating profit, given, I guess, you've got 1 quarter to go on organic sales and obviously, a whole half for operating profit. What are the sort of factors you're looking at that would see you land towards the top or bottom end of your guidance range?

I think if you step back, it's kind of unchanged from what we had talked about, right? We had talked about the fact that we had good Guinness capacity coming on stream, and you're seeing that in terms of is continuing to play out in terms of the strong performance into Q3, and that will continue into Q4 as well.

I think FIFA World Cup is critically important. I think as Dave has mentioned before, this is the first time with spirits producers really supporting this, and we want to make sure that we've got the right plans in place across North America and LAC but also rest of world because I think this is -- after a while, you're seeing 2014, I think, was the last time in Brazil, where you had the matches being and during this period of time with the time zone differences.

But clearly, I think that would be another element that we would be tracking that could have an impact on the performance on the top line. From a profit perspective, I think as we've indicated, the Accelerate savings continue to support. And if we continue to see positive mix coming through, particularly from some of the LAC and NAND activations on FIFA that will clearly have an impact as well. But I think more importantly, let's just step back and say, we feel good about our ability to deliver against the guidance that we've indicated.

The next question comes from Sanjeet Aujla of UBS.

Just going back to the U.S., where are inventory levels versus where you'd like them to be at the end of the quarter? And should we think about that shipment versus depletion gap widening as we go into Q4? Or is that what's embedded in the guidance?

I would say to you, Sanjeet, when you look at it, I mean, clearly, if you remember, even through half 1, our depletions were tracking ahead of shipments. And you can see that gap actually having increased back to what we had said. We want to ensure that we end the year with the appropriate levels of inventory in trade. Again, we can't manage, obviously, the full sellout through retail. But I think you would expect to see that similar level that's been baked into our full year guidance.

The next question comes from Edward Mundy of Jefferies.

I appreciate we'll probably have to wait until August for a bit more detail, but I'd just like to pick up with a comment around sort of deep work going on around the underlying competitiveness of the business. Is that a reference to some of the initiatives that you're taking on the portfolio architecture, execution, broadening in the parts of the industry, you're not currently playing in? Or is that more a comment around making the business more efficient?

And my question is, if part of what you're trying to do will require more reinvestment, will additional savings be able to offset that potential reinvestment? Or will one be greater than the other when you think about the scale of those 2 things.

Thank you, Edward. Look, to answer all of those questions, we wouldn't need to have the Capital Markets Day. So look, the way that we think about this Edward is we're taking a step back. We're taking a step back across the world and looked at all of the regions and all of the categories.

And we've asked ourselves some pretty fundamental questions about what's driving competitiveness in each and every one of those categories and each and every one of those regions. So it's quite a fundamental piece of work that starts as it should do with the consumer, looks at the capabilities of the organization, looks at the portfolio and look, we gave you some indication of what the short-term priorities are in terms of sort of relevant brand and competitive category strategies, a different approach to how we think about customers.

And yes, looking at the operating framework to see if we could be more effective and competitive. That work is very much underway, shared increasingly internally, tested internally. We'll be ready to share that with you in August on the 6th. So the detailed answers to your questions, I will -- we will attempt to give that to you then, but the work is not complete. So not in a position to give you any more guidance than I'm giving it at this point.

The next question comes from Olivier Nicolai of Goldman Sachs.

First on Mexico, just wanted to clarify something that you put in the press release, but could you give us a bit of an update on the strategy and when you would expect things to turn around looks like Mexico was a drag on price/mix in the region and sales decline in Q3? And then secondly, since the last results, you put on John O'Keeffe in charge of the U.S. Could you give us a bit more detail on this mandate and the key KPIs?

Nik, why don't you take Mexico and I'll take North America?

So as you rightly called out, I think Mexico continues to see a more cautious consumer both from a sentiment perspective and their disposable income, which is clearly impacting the performance in Q3. Half 1 was helped by some easier comps, if you go back to what we had indicated, but this wasn't the case in Q3.

Now I think if you look at it from an angle of what we've been indicating, we need to have some price repositioning to ensure that we've got a more competitive offering. And this goes back to what we've been -- Dave has talked about, I've talked about. And in particular, one example that we've talked about in Mexico is really what we need to be doing with Don Julio Blanco to be playing in what is a large top line and profit pool at the right price points, which will both enable recruitment but also help us then up the ladder from a premiumization perspective as we build that brand equity.

So I think as we've been doing that, clearly, we see an encouraging set of shared trends. And there will be some lag before you see the full results. But I think what we're seeing from a share perspective in particular, is encouraging, and we'll continue to monitor that and provide you some more color on that, both at the half -- at the full year, but as well as Dave said, with that broader work that's undergoing across all regions from an angle of our offering, our competitiveness and where we have the right to win. So more to come on that. Dave, I'll hand over to you for you the U.S.

Thank you, Nik. Look, I think in -- we've talked already that North America is a softer market, and there's much for us to do in North America. In conversations with Sally, we mutually agreed it was a good time for us to make a change. So I put on record our appreciation for everything that Sally has done for Diageo in a time with us. And in nominating John, we take one of Diageo's most experience spirits executives into our largest region.

And his brief is exactly as I've articulated ours to you, which is to step back and have a full evaluation of our competitiveness, our capabilities within that North American operation. It's been an intrinsic part of the strategy exercise that's ongoing. And so yes, his remit is to step back and advise and guide us in terms of how it is we can improve the competitors in North America. And as Nik says, we'll share the details or some of the details of that when we meet you in August.

The next question comes from Richard Withagen of Kepler Cheuvreux.

A question on the World Cup. This is a bit of a first for you in terms of activation and so on. I think you've selected a couple of brands to focus on specifically. But can you sort of describe what are your longer-term benefit that you expect from the FIFA World Cup activation, please?

Do you want to go Nik? Or shall I?

Well, why don't you start, and I'll add in.

Look, Richard, it's the first time there's ever been a spirit sponsor of the World Cup, right? So it's not been done before. So in that sense, we're all going to learn something. I think, look, having been involved in intimately in the plans in Latin America, I think the relationship of football, our brands and all of the occasions that go with that feels like a very strong link, and we'll look at it in terms of the impact, both on brand equity and obviously, brand sales.

I think in North America, let's be honest, it's going to be a learning curve. We'll see how the World Cup goes in North America. The buildup to it, as I said, I'm in the states here, and I reviewed something yesterday, the buildup to the World Cup seems strong. But we don't know. There is no history in terms of how the brands will respond to activation, but we'll use the usual metrics in terms of impact on the brand equity and also the impact on both short-term and sort of medium, long-term sales. But North America, I think, is probably going to be a bit more of a voyage of discovery. I think we probably feel more confident in the reaction in Latin America, given what we know about the passion to football that exists in that part of the world.

The next question comes from Sarah Simon of Morgan Stanley.

Yes. Just a quick one on the Canada commercial dispute. Is it right to assume that, that will all drop to the bottom line because I think there's no volume. It's just a kind of refund or something? And also, was that kind of included, did you know that was coming when we gave guidance at H1?

Yes. So to your point on -- does it all just drop to the bottom line? Well, technically, yes. But having said that, we're also coming back to the point around wanting to ensure that we're taking advantage of where we have some opportunities to invest in advance where we feel that we can get a good payback, we would look at that. And so we're looking at it in the aggregate of what makes sense for the business as we look forward.

So that's where that is. Did we know that was coming? Well, obviously, we track what the -- a position might be, so we couldn't say with certainty where it was. But as I said, more importantly, it gives us some more opportunity to look at potential investment with some returns as we go into Q4.

The next question comes from Chris Pitcher of Rothschild & Co.

Can I just quickly follow up on Sarah's question and ask mine? I mean in terms of quantifying the Canada benefit, you talked about price/mix in North America being negative without it. I can't see any reason why the price mix in the first half would have improved, which would indicate it could be a $50 million, $60 million benefit. And I believe you had agreed with the LCBO or with Ontario to increase spending in the province. So it sounds like it could almost cover off that? Can I just clarify that?

And then secondly, or the question, on U.S. beer, we've seen improving momentum in the U.S. beer market and your beer business improved. Was there anything in that acceleration in the U.S. that was technical or phasing? Or are you seeing increasing momentum across both Guinness and Smirnoff?

So to the last question, yes, we are seeing increasing momentum and part of this is very much back to what we had talked about when we talked about second half, where we're focused a lot more on RTDs, and we'd indicated that would be happening. And positively, we are seeing that coming through. And Guinness, both from an angle of continued deep cultural relevance even in the U.S. as we're building out our Guinness brand as well as more capacity that's allowing us to supply more is supporting that.

So nothing technical outside of continuing momentum on that. From an angle of the question on the Canada piece, no, it's not that high. So I wouldn't give you an absolute number. but it is definitely a lot lower than what you're referring to. So yes, there was negative price/mix U.S. spirits. But I would say that's kind of what we've indicated with really the mix coming through from the spirits weakness as well as the category down trading within that space.

The next question comes from Trevor Stirling of Bernstein.

So just one question from my side, please. And this may be one we have to wait until August, Dave. But you talked in February about RTDs and there obviously been press reports about an increased focus on RTDs being one element of the strategy. I wonder if there's any sort of color you can give us ahead of August.

Trevor, I suppose the short answer is no, really. I think we stay with the position, which is -- we consider RTDs to be a growth opportunity. I think we would readily accept that we've been perhaps a little slow in addressing that opportunity. There's plans in place now, there will be even more plans in place as we go forward. But Trevor, I suspect as we go between here and December, just given the nature of where the business has been, there will always be, I think, little stories that will pop out into the U.K. press.

It's not going to be my intention to respond to each and every rumor that gets out there. That's not going to be helpful to anybody. I think also we'll be sensitive as we go forward about anything that we would consider to be competitively sensitive. So I'm not going to comment as we go through on any particular brand plan. That wouldn't be -- I don't think that would be appropriate or helpful even to Diageo investors. But we will give you a strategic overview and some real clarity when we see you in August.

And the last question today is from Andrea Pistacchi of Bank of America.

So a question on Europe, where you had a strong quarter. And I think even netting out the phasing effects, the performance remains very solid. Now beer is the key driver there. But just interested in your assessment of the situation from your -- from Diageo perspective on spirits in Europe and also how you see the competitiveness of your brand there, which tend to be a bit more mainstream than they are in the U.S.

Yes. So listen, I think clearly, as you've seen, the momentum on Guinness, particularly in Great Britain and Ireland, continues strongly. But I would also say with some of the broader portfolio play, Dave talked about that with MENA. I think we've also taken some actions in Great Britain as well as some of the other European markets we're playing in a broader portfolio at the right price points at the right price positioning on shelf to be competitive as well as support our customers.

So a lot more work to do, but you're already seeing the early signs of that coming through, which is a positive. And I think we'll provide you, as Dave said, more color on that across all the regions as we think about our competitiveness, our category and brand strategy and how we want to work with our customers to be able to drive a shared growth agenda and drive value for them and for us, so more to come on that. But I think scotch, tequila, vodka, I think we're doing the right things as we think about a broader portfolio play across the region, in addition, obviously, to Guinness.

Thank you. This concludes the Q&A session. So I'd like to hand back to Dave for closing remarks.

Thank you very much indeed, and thank you, everybody, for joining us and for your questions. I suppose the way that I would sum up is, look, there's some real encouragement in a number of areas. We've been able to make interventions in parts of the group and see responses quite quickly. We know that in North America that, that was going to take longer, and we consider that, that will still be the case. I'm -- particularly encouraged by the way that the team, the whole of the Diageo team is engaging in the strategic refresh and rethinking around how it is we can be more competitive and effective as an organization.

We'll share that with you in some detail when we meet in August. I think when half year, we said by the end of the summer. So we hope that by bringing it forward to the 6th of August, we'll complete all of your questions before you head up for your summer holiday. So with that, I thank you again for your time and your support, and we'll see you in August.

Hello, everyone, and thank you for joining the Diageo F '26 Interim Results Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to your host, Sonya Ghobrial, Global Head of Investor Relations, to begin. Please go ahead.

Thanks very much. Good morning, everyone. Welcome to Diageo's Fiscal '26 Interim Results Q&A. I'm Sonya Ghobrial, Head of Investor Relations and I'm joined this morning by Sir Dave Lewis, Chief Executive Officer; and Nik Jhangiani, Chief Financial Officer.

Firstly, thanks all for joining us on what I know is a busy day for results with peers and some good friends reporting.

Just a quick reminder for those on the call that in the discussions today, the company may make certain forward-looking statements, including those that refer to our estimates, plans and expectations.

Please refer to this morning's release and the company's U.K. and U.S. filings for more detail, including factors that could lead to actual results to materially differ from those expressed in or implied by any such forward-looking statements. Hopefully, you've all seen this morning's press release and presentation, both of which can be found on our website.

For those listening, who would like to ask a question, please use the dial-in details included in today's press release. Also if I could ask you to limit to 1 question per analyst, we can hopefully get around everyone.

First, let me hand over to Dave, though, for some opening remarks.

Thank you, Sonya. Good morning, everyone. Thanks again for joining us. If I just take 2 minutes before we get straight into questions.

You've seen, obviously, the results from us today. As I say in the press release, we consider them to be mixed.

Encouragement in Latin America, Europe and Africa, offset by the weakness in Chinese white spirits and North America. In fairness to the team, the Chinese white spirits is not particularly in our direct control, but clearly, the North American position is.

Against that background, we set out 3 immediate priorities, and you had a chance to see that in the presentation and obviously take some questions. We're also clear that we are working hard on a revisit to the strategy for Diageo. We will complete that in calendar Q2 with Diageo and then share it with you as soon as we can thereafter.

I suppose the thing that I need to refer to is obviously the change in the dividend policy that's been announced today. From our perspective, this is about recognizing that we need to invest in the competitiveness of our business, and that's particularly around the portfolio to allow us the space to invest in the capacity, particularly in Guinness that we need to support that growth, but also in the capability improvement that I see as an opportunity in the business. And then with urgency to rebuild the balance sheet. That's the reason that the Board has revisited the dividend policy. I'm sure there'll be questions about it, but I thought I would give you a little bit of context before we open it up to your questions.

With that, over to you.

[Operator Instructions] The first question today comes from Sanjeet Aujla from UBS.

My question is, following the dividend cut announced today, do you think Diageo needs a short-term profit reset as we go into 2027 to execute your immediate priorities? Or is there enough cost savings to help fund that?

Sanjeet, thank you very much. Why don't I start and then Nik can add. Look, we're not guiding into '27, as you know. We've been clear about what the guidance for '26 is. We're looking at a profitability, which is flat with potential for a little bit of growth, and we're committed to the GBP 3 billion of cash that we'll generate this year. We will revisit the strategy, as I've said.

I suppose the thing that I would point to, Sanjeet, is that if the reason -- one of the reasons we gave the MENA example is we may have to invest in diluting a little the percentage margin of our portfolio in order to get the competitiveness that we're looking for. But actually, the quantum of gross profit that's come back in that particular case has paid for that investment.

So I actually think there's opportunity within the portfolio to have some volume return on the investment. But I also think there are opportunities inside Diageo for us to be more efficient. I just need a little bit more time for us to work through those, and we'll bring that to you in the strategy because we're not giving any guidance for '27 as we said.

Nik, I don't know if you want to...

No, I think you said that. The only thing I would add there is, as Dave said, some of these choices and decisions take time, and it's not necessarily a one-for-one in terms of how that might come through. But as you look forward, the ability to look at the gross profit value pool and where we play continues to be a big opportunity.

The next question comes from Simon Hales of Citi.

So Dave, I was struck by some of your comments around particularly what you're saying about redesigning the Diageo operating framework as it sounds like that's going to drive hopefully faster innovation and some further efficiencies. So I've got just a couple of sub-questions to that.

I mean given that you highlighted that need to step up on the innovation side that will be more agile, particularly in the areas of RTDs, is that urgency something we might see show up over the next 6 months? Are there some perhaps new RTD launches already in the pipeline, for example?

And then secondly, on the cost side,you've clearly been able to deliver savings from the Accelerate program a bit more quickly in fiscal 2026 than originally expected. You're not specifically referencing Accelerate beyond 2026 as things stand unless I missed it. So I think you'll probably come back at the midyear and give us a bit more of a flavor on cost efficiencies from here. But how should we think about the trade-off between reinvestment into the business given you're talking about differentiating competencies over the medium term versus a drop-through to the bottom line of potential further savings?

Got it. Simon, thank you very much indeed. Again, I'll kick off. Look, I think there is a significant opportunity for us to rethink how it is, we, as Diageo, go-to-market. I think there are opportunities for us to be more competitive in the way we think about how we deploy all of our resources. So that's something that we need to work through as a team. It's going to take us a little bit of time, but I'll share it with you as soon as I possibly can.

I think Nik touched on one thing. One of the things that's come, Simon, as someone new to this particular industry is there is some lead time between decision and being able to implement. So the innovation plan for the 6 months in the balance of this year is pretty much set. So there's going to be -- as a result of the presentations today, you shouldn't assume that there's going to be a material change in the -- now there's a very good activity plan for the balance of the year, but you shouldn't read that there's going to be a change particularly to that as a result of what we said this morning.

I think on the Accelerate program, Nik kicked this off before. I think the program is delivering. We talk about delivering 50% of the $625 million. This year, in the first half, we've done 40% of that 50%. So the progress -- and we will carry on. What we will probably do, in fact, is we will roll in a full review of the operating framework that we'll share with you in '27 and any continuing part of Accelerate will be consumed within that.

But that would be my point. I think the thing I would say, going back to the innovation is if you look in -- particularly in North America, which is obviously a focal point for reasons that were obvious in the statement, we've got FIFA in the second half of this year. So the idea that we were to change any of the plans in the second half of the year just really isn't an opportunity for us. So again, I don't think you should read in that you're going to see material changes in the next 6 months as a result of the comments that I made this [ morning ].

The next question comes from Andrea Pistacchi of Bank of America.

Yes. Dave, you talked about needing to provide more affordability to consumers and investing in competitiveness of the business. And you said, I think that while you'll continue to invest in premium, you'll also explore opportunities which might involve some price repositioning. So I'd like if you could please expand a bit more on this potential for price repositioning, particularly on the U.S.

Would the -- and maybe this is a bit more detail, it's a bit too detailed for now, but would the repositioning you have in mind be, as you're thinking of it, be quite specific and targeted by brand, I don't know like, for example, a Casamigos? Or do you believe that a broader price adjustment may be required?

And sort of connected to this, what gives you the confidence that price elasticities are high enough to get an adequate volume response? And do you see the risks of getting into an even more competitive sort of pricing environment?

Andrea, fantastic question. So let me try and then Nik can add. Look, I think the way that I think about Andrea, is that we start from a place which is let's consider all consumers and not just those which sit in the premium space. I don't want to take focus away from the premium. I just want to add the lens, which is there's a whole bunch of people at the moment who are not enjoying a brand from Diageo in our core categories. And that, I think, is an opportunity for us.

It's interesting. If I give a different example to the ones I gave this morning, if I look at the market in Latin America, our portfolio across Latin America really only plays in the top 25%, 30% of the market. And therefore, there's an opportunity for us to think about that market below those price points. Now if we do that and we do that well, that would be incremental to our business and therefore, not something that we should be anything but joined about.

But the critical thing for us is, as you say, that price repositioning, that very selective price repositioning that needs to be done will be done surgically. It will be done by brand. It will be done by pack size. It will be done by market, it will be done by channel, it will be -- that's where in the -- I talked about that price pack architecture. This is where category management really comes to the fore. I think, again, going back to the MENA example, really very encouraged.

You see it at play in that example. We launched yet more premium offerings, Bulleit is a really good example, but we slightly tweaked the price positioning of, yes, Johnnie Walker, but very significantly with VAT 69, Black & White and J&B, we changed those positions. That now, does dilute the percentage margin of those 3 brands in the portfolio, but it pays back -- in that particular case, it's paid back by gross profit. The work that we need to do that will inform the strategy is some of that flat price elasticity that you referred to.

I don't have all of that in every market as we speak, but we will have it before we finalize the strategy. So it's going to be a very targeted, very specific piece of work. We do think, based on what we've seen so far, that there is a volume response to price repositioning if we get it right. That's the opportunity.

But what it does mean is you dilute a little bit the percentage profitability and look to gain quantum of gross profit as you make those changes, I don't know, Nik, do you want to add anything to that?

No, I think you've covered it.

The next question is from Gen Cross of BNP Paribas.

It appears in the presentation that you view the weakness in the U.S. spirits market is very much being principally driven by economic pressure on disposable income.

So I guess on the basis that economic pressure will eventually ease, as you think about building out your updated strategy, will it be based on the assumption that over the midterm, the U.S. spirits category will eventually return to its kind of pre-pandemic growth cadence?

Gen, Look, I think -- look, we'll share with you what assumptions we make about the U.S. economy as we write the strategy. We'll probably look at different scenarios as you would expect us to. But you're right, we do see the economics and the disposable income as being one of the biggest downward pressures on the spirits category in North America.

Gen, I think I'd share with you my background and my experience leads me to a place where I think that having a portfolio of offerings is the right medium- and long-term strategy to have. Sometimes the economy will be strong, sometimes it will be weak. It's important that we have a portfolio that is competitive and creates value for shareholders in both of those circumstances.

So the way we'll think about strategy is how do we build out a portfolio that actually reflects and is effective in the prevailing economic conditions. We can make some calls about how that might change into the future. But I don't want the Diageo business to be something that has to rely on the economic temperature in order to be successful. That's going to be the change in the strategy you see going forward.

We've got a brilliant portfolio of premium, but we can add to that in a way which makes the portfolio significantly more resilient. We just need to do that in a way which creates value for shareholders.

The next question comes from Mitch Collett of Deutsche Bank.

So Dave, Nik, Sonya, a few times in the slides, you have the sort of focus on customer, customer, customer. I guess you've been a customer of Diageo. So Dave, so I'm really interested in your thoughts on how Diageo can improve that customer execution and ultimately, how that improved execution would better serve Diageo shareholders.

Mitch, thank you very much indeed. And can I just say, please? It's just Dave, all right? Sorry, I should have said -- it's definitely just Dave. Look, Mitch, I'll be very candid with you. I said -- I was asked the question when I first started on my first day by a lot of Diageo colleagues about what Tesco's view of Diageo was.

People in the room here are smiling, they remember. And the feedback I gave them, I don't mind sharing with you is we always as Tesco, we were in all of the branded portfolio that Diageo had, right? And I'm saying that unashamedly, it was always what a fantastic portfolio. But some years, the innovation plan was super strong, some years less, but the brands were phenomenal.

We always felt though that they didn't really engage with us and thinking about how we run our business as Tesco, i.e., the category lens. And that actually some of the things in terms of how they engaged operationally processes were not best-in-class, right? So that was the impression back at Tesco.

I have to say, and I was candid with the team as I gave the global feedback, having now been inside Diageo for 7 weeks, we have not invested in the customer relationship. We've not invested in the systems and the processes that would make it a professional operation. I gave you some of the customer service headlines for some of the key geographies to -- as a simple illustration of that.

But if I tell you that today, Diageo across the world enters 65% of its orders from its customers manually, gives you some idea about how far behind we are. But as I say, an opportunity about how we might engage with our customers differently.

So I think there's a whole area of transactional engagement with customers that operationally, we can and we should improve. That will do 2 things. That should, if we do it well, lower the cost of servicing our customers. It should also free up cash if we do it properly. But the bigger opportunity for us is to think about categories.

Off-trade customers think through the lens of category. And the more that we can go to our customers and show that actually we're thinking about how it is we grow their categories, actually, that is a basis on which you can build real partnership. And what I want us to do is I want to start thinking about how we grow with our customers rather than thinking about how we grow through our customers.

Subtle difference, but if we're able to do that, then that will yield more value to Diageo shareholders. But I have to be honest, it's a change in mindset for the Diageo business. And that's why I'm calling it out for both an internal audience and indeed an external one.

The next question comes from Laurence Whyatt of Barclays.

Just one on your strategic reviews and potential disposals. You sort of see you're progressing with the Royal Challenges in India and the Chinese spirits business. Can we assume then you're largely done with the sort of major sort of slightly more substantial disposals. And of course, it was speculated last year around brands like Guinness, you mentioned how you think Guinness is an excellent brand. But no real mention of Moët Hennessy. And of course, that was speculated earlier last year. I wonder if you have any comments or reiterate the comments that were made earlier last year that's absolutely not so.

Well, Laurence, thank you. Why don't I say something about the approach in general and I'll ask Nik to update you on where we are with the ABL and the review that's going on by the Indian business.

Look, I think we will never comment on speculation. One of the things that I said very clearly is I have no interest in selling brands below their value. I understand where this market is at this moment in time, and I understand the speculation is that the way that we should delever our businesses through disposals.

You mentioned 2 speculative ones, but they're certainly not things that we have referenced. I want us as Diageo to be super clear. We're not going to sell brands below fair value. If somebody were to approach us and make us an offer that we can't refuse, the portfolio assets, which are not part of our strategy, as a sensible business people, we will obviously listen and engage with that.

What I want to be clear is we're not actively out in the marketplace hawking a whole series of what people have called [indiscernible] and nor are we active in a couple of things that you have speculated about. But I just want to be clear about that. We're going to strengthen the balance sheet through the actions that we've talked about rather than looking to dispose of some of the assets that people speculate about.

But Nik, do you want to say something about what we are actually doing in this space?

Yes. And it just comes back to precisely what David has just said. And I think that's been our position from day 1 that we are exiting certain noncore businesses. We never talked about brands. And obviously, when you now look at what we're doing, you've seen the announcement on EABL. And USL alongside us is doing a strategic review of RCB. Again, we don't need to own a Cricket Club. That's not core to our business, but important in terms of the brand and what we can do. So that's in train and in progress, won't speculate any further, and we'll update you in due course.

Just on your comment on SJF, just to be clear, we have never talked about that. That's speculation. And so I won't comment on that further. And I will just reiterate on both Guinness and Moët Hennessy, we were very clear.

We are not sellers, and that still stands as it is. And the last thing I would say to Dave's point, there's a lot of tail brands that were exited pre and during my arrival here. And as Dave said, we've been clear, no fireside sale of any of these assets. And more importantly, let the strategy first be laid out, and that will determine what we think about our brand and our portfolio going forward.

The next question is from Chris Pitcher of Rothschild & Co Redburn.

You're clearly impressed with Guinness, but you mentioned specifically that the brand has geographic constraints. Would you have sold the assets in Africa? And following on from that, the previous strategy was to free up capital from beer and make it an asset-light business. Do you still agree with that? Because it does sound like you're looking to put more capital into the business to expand capacity. But does it need more people on the ground to sustain the current growth? And which markets do you see as most interesting, not just for growth in license volume, but growth profit? Sorry, long question.

No, no, no, Chris, it's a great question. But you probably -- if you didn't pick up in my previous life, the one thing I'm never going to share on a call like this is what I might do in the future. I always consider those things to be competitively sensitive. So I'll decline to give you my rollout plan for Guinness, if you don't mind.

Look, I think my -- I'm very impressed with the brand, really very impressed with the brand. I'm very impressed with the team and the way the team are thinking about the brand. I'm very impressed with some of the work that's thinking about different business models behind the brand, and you referenced one of them, which is a more asset-light way of thinking about how you can take Guinness into new markets.

So I look at the locker of Guinness and I see it as a very full locker with opportunity. However, we sit here today with capacity constraints, capacity constraints on Guinness and Guinness Zero. I've shown you some of the customer service levels, which are just not unacceptable. And I've shown you that actually 10 markets are 80% of the business.

So we do see opportunity for Guinness in a number of other markets. We can't even consider that until we sort out the capacity point. Now in fairness, what the team have been doing historically is balancing how much we can invest in Guinness with some of the other investments in the portfolio, the usual stuff that management teams have to do. But I don't want to, in any way, constrain the investment in Guinness capacity given that we have a wealth of opportunities. But forgive me, Chris, I'm going to decline to tell you which markets and when we might deploy that.

I would just add, Chris, and you were present, you saw us at the Guinness Mini event. And we clearly laid out the opportunity when you look across markets, even where we're present today, as Dave said.

And some of that capacity will come on in half 2, Q4 in particular. But to Dave's point, with the growth that we're seeing, that's not going to be enough for the next 2 or 3 years, and we need to continue leveraging on the growth opportunity and the gross profit dollars that brings...

The next question comes from James Edwardes Jones of RBC.

Timing, mid-Q3 seems quite a long time to wait for you to update the market, particularly as you're kind of proposing -- giving your proposals to the Board in Q2. How are you using your time between now and then?

James, I take the challenge. Look, I gave some detail of what I've been doing in the first 7 weeks. This week and next week go with investors, as you can imagine. I've then got a complete getting around. So there's still Africa, there's Asia for me to spend some time.

So I just want to make sure that I've got the firmest of foundations in understanding the business we have today. There's been quite a lot of engagement with the exec around strategic options, choices, consequences that need to be fully explored and evaluated. A lot of work underway there, but we need to then get ourselves as a team through that evaluation of those alternatives. We then need to engage with the Board. And then depending how quickly that goes, obviously, I'll be in a position where we can share it with other stakeholders and principally, obviously, the city.

So I'd rather -- one thing I won't do, James, is rush. I don't think there's any benefit here in being quick and incomplete. So I give us the challenge that when we come, I hope you're impressed with what we've done. But I need to make sure that we do that properly. And that's probably first me, understanding the business fully, then with the exec really exploring the alternatives and then bringing the Board into those discussions so we can get ourselves to a place where we've done a proper job.

And as soon -- I'll say to you is as soon as we've done that and we've agreed, we'll find the right way of sharing with you. I try to give you some broad time lines, but we'll firm those up as we go through the calendar year.

The next question comes from Javier Gonzalez-Lastra of Berenberg.

One question from me. On the U.S., I just wondered how feasible is it for Diageo to reset prices or activate more mainstream brands in the portfolio without impacting margins in a major way?

Javier, it's a really good question. It's -- the distribution routes in North America are particular. It needs to be planned. It comes a little bit to what Nik was saying earlier, which is it takes time to change the plan in North America. It takes time to change the plan in North America anyway, particularly takes time when you've got an event like FIFA that's been built in with all customers for quite some time now. But it is possible. If you talk to Sally and the team, it is possible.

We need to be thoughtful, mindful and have a longer and medium-term position, and that's the work that's going on now. But it goes back, Javier, to what I said earlier, which is that's why I don't think you should see any meaningful difference in the U.S. plan as a result of what I've said. That's why we're holding the guidance that we've given you on profit and cash for this year, but we're indicating that we're going to have to invest in the North American business in '27 and on.

And that means how do we invest in the portfolio, but also in a way which enhances quantum of gross profit even if it dilutes percentage margin. But it's possible to do. It just needs to be done carefully and thoughtfully and with some lead time. So Nik, I don't know if you want to add anything on that.

No.

The next question comes from Trevor Stirling of Bernstein.

Dave, you've hinted at some of the softer aspects of the redesigning the Diageo operating framework. But if you took a broader picture, what's your assessment of Diageo's culture and how the culture of the organization needs to evolve?

It's a great question, Trevor. I have touched on it. I think -- look, there's -- first and foremost, the thing that strikes me -- has struck me over the 7 years -- 7 years -- 7 weeks -- is the energy in the organization. Actually coming in, given the difficulty in the last few years, one of the questions was what would the energy be like in the organization, especially given that there's a turnaround required, the energy levels are really very high. And that I think it's a very big and very important positive. I think there is quite a lot of feedback inside the team that the way that we operate is not as clear and not as agile as it could be.

So people have been quite open to sharing some of that frustration. That's why I referred to it in the presentation in the way that I do. I think the bits of culture that I -- the 2 things that I would point to at this point, Trevor, would be, there's a question for us to think about what are those differentiating competencies. What are the capabilities of the organization that either are there but need to be sharpened or indeed need to be brought to the business. I think we're there on the way we think about brand, but we need to add that lens of category. It's not there in the way that we think.

So from a capability point of view, we need to add that. We need to add a greater priority and a different approach to our customers. I've not seen anything in the culture that makes me concerned about our ability to do that. If anything, I think the culture is thirsty for us to be a little bit more competitive, a little bit more external in the way that we go. It's a very collegiate culture, which is one of its great strengths.

Maybe sometimes that makes us a little bit slower than we could be. So how we inject some pace, but that's for me and that's for the leadership team. But I've not felt any resistance to that, Trevor. But look, when we get to the point where we share the strategy, I will share also a little bit more what we're doing in terms of the evolution of the culture inside Diageo as well.

The next question comes from Richard Withagen from Kepler Cheuvreux.

I want to go back to the U.S. Maybe can you please share your thoughts on the margin structure in the U.S. and how that stacks up to the potential growth of the portfolio and also resource allocation within the portfolio?

Why don't I give you the general answer, Richard, and then I'll ask Nik to give you a bit more specific. Look, I think the -- we use the example of our U.S. spirits business and tequila to show how our portfolio is very well served at the premium end, but we're underrepresented in the volume parts of the market. That's an opportunity for us.

That means that we will have to think about selective price repositioning, maybe possibly activating brands that we haven't activated for a while, and we're fortunate to have a portfolio of opportunities there. That, I think, is likely to have a in '27, a downward pressure in terms of the percentage margin of our portfolio in North America.

Not in a place that I can guide you to that at this point in time. But I think if you want some direction of travel, it's an investment in the percentage margin of our business in North America.

What we've got to work through is what is the quantum of gross profit that comes from that price investment. And therefore -- and if we don't -- in the unlikely event that we don't happen to cover it all, how can we mitigate that from elsewhere. But what we must do is make our portfolio competitive in North America, not just in 1 or 2 segments, but more broadly. So that's how I think about it at a general level. Nik, I don't know if you want to say anything more specific to, Richard?

No, I think the only thing I would add, and this is probably, again, an example, right, of what we can do.

We've talked about the fact that when we look at tequila, we've got an enviable portfolio, but it's been playing at the top end. And in some ways, if you look at the brands and take Casamigos, it's actually been competing like we've said with Don Julio, right? And there clearly is an opportunity to reposition that.

Now we can reposition that to Dave's point, very smartly and surgically when we look at it across channels, packs, occasions, et cetera. And we'll continue to test that in the right way. One of the things, for instance, that we know while we've done this in Florida, clearly, that's had a positive impact, right? Now there's more to do. One of the biggest issues we still deal with is the fact that Casamigos, for example, is in lockbox. Well, clearly, we know if it's in lockbox, that has an implication on consumers' propensity or shoppers propensity to buy that.

How do we work with our customers back to Dave's point, around helping them grow and helping the category grow by putting it on the floor, right, at the right price point, right, to serve the right type of consumer occasion that's coming in there. So there's a lot more work that we need to do, and I'm just giving you that as one example, but there's other brands in the same thing, whether it's Smirnoff, whether it's Captain Morgan, et cetera. So that's the work that we'll be going through.

The next question comes from Sarah Simon of Morgan Stanley.

I just had one question around GLP-1. So you've talked about a sort of pretty limited impact from that, which is sort of not surprising because weighed sort of generically, there's not that many people on GLP-1s yet. But clearly, the price of GLP-1s is going down, they're going off patent, et cetera. It's not just going to be a sort of U.S.-centric issue. So just interested in your thoughts on kind of, okay, GLP-1, maybe not so much impact up until now, but how are you thinking about preparing the portfolio for more GLP-1 in the future?

Yes. No, thank you, Sarah. Obviously, clear, and we touched on it in the presentation, and I don't at all want to diminish it. Something we need to understand and we need to constantly evaluate, especially as you say, as the price comes down and potentially the adoption increases. I suppose the interesting thing is this is why it's important to think through the lens of spirits rather than TBA.

What I've seen in the work -- I'm trying to read just about everything that anybody writes on this particular subject for reasons that you can imagine. Attitude to spirits is really quite distinct and different. Hope you've seen this, I think it was more in conduit or [indiscernible].

Very interesting deep dive survey that came out, I believe, less than a week ago. Looking at a sample size of around 60,000 GLP-1 users. So one of the bigger samples that we've seen. And the attitudes towards different categories in there are really very interesting.

And what you see is that actually the impact on spirits is really rather small. In fact, actually, as part of a new lifestyle, I say that in this comments, this is the consumers who are using GLP-1 talking, not me, actually, experimentation, socializing, actually engaging with other people increases as they change as a result of GLP-1s. And all of those things actually are positive to wanting to explore the spirits category.

So I don't want at all to diminish it. I think it's something we will stay very cognizant of, but we'll look at it through the lens of spirits, particularly, and we'll think about that as we redefine our innovation approach going forward. But I'm just sharing with people the evaluation as it sits today, Sarah.

The next question comes from Fintan Ryan of Goodbody.

2 questions from me, please. Firstly, could you elaborate some of your thinking or the thinking at the Board level around the change to the dividend, payout ratio for this year and going forward? I appreciate that 30% to 50% is a quite wide range and lower than the market had been anticipating, but your thoughts around how that should evolve in this -- within the range this year and going forward?

And as well, just in terms of the free cash generation and some of the investments you're talking about in margins, particularly North America into next year, does this -- does the dividend cut imply you're less confident with the GBP 3 billion free cash generation minimum from FY '27 onwards that I guess -- that the business had been talking to previously?

Why don't I start and then I'll pass to Nik, I think. Look, first and foremost, reconfirming the GBP 3 billion this year as we have done in the release. I think what we -- one of the conversations with the Board has been, yes, there's a very big timing question here. As we invest in making the portfolio more competitive, the first step is one which clearly dilutes the percentage margin.

We've then got to see the volume come back. We've got quite a lot of work to do to see and do all the detailed work around those elasticities. But what we're saying is we know the one thing that we can't do is not invest in the competitive in the North American business. And so that's what the Board has factored into its decision.

And at the same time, if I look at what the Street is looking at in terms of CapEx, we think you're on the low side, not by a lot, but by some because we want to invest in Guinness and the capabilities that I've talked about before. So it's that combination of investments, leading investments selectively in North America and investing in a little bit more CapEx than you guys are currently that basically says we need to create more space as well as our desire to rebuild the balance sheet more quickly. So that's what's driving the decision to revisit the dividend policy. But then when it comes to payout ratios and the -- why don't t I pass to you, Nik.

Yes. So I think just building on Dave's point. Stepping back and when we were sitting at the full year and the guidance that we provided on Accelerate. The first thing I would say, Dave and my commitment to generating strong cash flows from this business is unchanged, okay? And we're very aligned on that. So there's no issue there.

The second thing I would say is, clearly, our view of the U.S. market and the U.S. spirits category was quite different. And if you remember, we talked about the fact that we weren't expecting a further deterioration from where we were in fiscal '25. We weren't planning for a significant improvement either. But clearly, this has deteriorated at a much faster rate from an angle of the affordability. And our portfolio then as a result, is not playing that, right?

And if we want to give ourselves the space and the flexibility, hence, the difficult discussion and decision that Dave talked about that we've had together as a Board around how do we do that. And the best way to do that to invest in the business was to come up with a payout ratio, probably starting at the lower end of that, but allows us to build into what is clearly our focus, which is shareholder value creation. And we all recognize that we want to continue to return cash to shareholders. This gives us more flexibility to invest in the business and also find the appropriate forms of which we can return cash to shareholders. And I'll stop there because I don't think there's anything more to say there.

The next question comes from Pierre Tegnér of ODDO BHF.

First, welcome back, Dave, and big thanks for the first thoughts you shared. Very interesting. As a follow-up to the previous questions on the more frequency and the need to raise the bar in terms of category management. Do you think the spirits industry is embracing clearly a new big challenge of doing more frequently on a more speedy way, increasing velocity and asset rotation with maybe lower percentage margin?

And on a more global thinking, how much is it suggesting a big change of the future drivers for cash generation and ROIC? I will mean a better balance between P&L and asset rotation on the medium term.

Nice to talk to you again, Pierre, and as always, a very good and detailed question. But I think there's -- 2 things. I think -- and Nik, please add. I think there are a couple of things that I see. Look, I deliberately gave a historic perspective. Actually, the spirits category, if you look over the last 15 years, is the most stable category I think I've ever come across in my consumer goods life, right?

And when you look at how people engage with it and you look at how it grows in line with GDP, it's remarkable. So I've not seen anything at all, Pierre, that says to me at this point in time, there's a massive disruption in the way that people engage with spirits in the immediate future. I haven't. I think what's happening is the way people are choosing to engage with the category is changing, particularly for younger people.

And there's much more on the go. There's much more third spaces. They're making choices about where and how they choose to socialize that are different. And therefore, the invitation for a consumer goods business like ours is how do we adjust our business so we can serve them where they want to be. I think that is real. I think we need to think carefully about that. I think does that mean that some of the metrics and how we think about our portfolio and our asset base need to change?

Yes, in some cases, possibly, yes. I look at RTDs. I look at that trend and I perhaps see it slightly differently than maybe historically people see it. We look at it -- and if I may be so bold, I think Diageo historically would have looked at it and said, look, the percentage margin is too dilutive do we really want to play here?

I think I heard before I joined, I heard Nik talk about this phenomena a couple of times for Diageo. If you look at it through the lens of a cost per serve, you see a completely different mechanic, right? So this is -- an RTD is a more expensive way for consumers to have a simple cocktail than it would be if they were able to buy a larger pack and make it themselves.

But it's also cheaper than it would be to buy the same drink in a pub and therefore, given the out of pocket, they choose to go there and they can take it where they want. So those things are changing, Pierre, and we need to change with it. Actually, when you look at the profitability of that serve, it can actually be accretive versus the large pack.

And therefore, we might need to think about our metrics slightly differently because I was taught very early in my career that you don't take percentages to the bank, you take cash to the bank. And so I'll be looking at total gross profit. And in parts of our portfolio, I think we might need to change the lens that we look at and how it is we think about shareholder return.

But I don't think that, that is a precursor to a massive change in what I would consider to be the core spirits market. More to do. You'll see this come to life as we think about the strategy going forward. I don't think you'll see something which you and I would consider to be material, but I think you'll see some sharpness as to how we think about the portfolio and how it is we activate the portfolio in a way which generates return for our shareholders in a way that we've not had in the business before.

But I'm not [ precursoring ] a massive change in the spirits market given where your question started. Anything to add...

No. All good.

We take one more.

Our last question today comes from Edward Mundy of Jefferies.

So I've got just one question, which hopefully brings together all 3 priorities, Dave. So the 3 parts. So the first part is around your first priority, which is competitive category and brand repositioning work. Can you do this without increasing A&P? In other words, is the quantum of EBIT that you would expect from this also higher? That's the first part.

The second is on the customer piece, the shift from growing through your customers to growing with your customers. Does this cost money? Or can you also do this through shifting around your enormous trade spend, GBP 3 billion bucket and also a pretty big A&P ticket?

And then the third part which is back to the redesign of the operating framework. And if there is more investment, can all this be funded by this new potential operating framework redesign?

Nice to hear you again. And a very clever way of getting 3 questions into one. I like that. Look, I think when it comes to category and brand, I think you can think about Diageo historically and you think about premium, you think the only way to grow brand is A&P. Actually, when you think about category portfolios, there are very, very different ways of thinking about how you build brands. So I don't think you should necessarily read category strategy and read an increase in A&P.

I think actually, when you're looking at price points, which are different from premium, it's much more about investing in price on shelf and position and other things rather than A&P. So no, I don't think a category brand -- a more category-driven approach leads you to a place where you spend more A&P.

I think you have to be a little bit more dextrous about different support models for different brands in different price positions. I think when we talk about growing with our customers, the whole idea here is you're opening new value. We used to talk when I was a customer, which is if the relationship with a supplier is that the size of the cake is constant or is getting smaller, all that happens is you argue over the divvy up of the cake.

When you start growing with your customer, you make the cake bigger. It makes the conversation so much easier to have -- and that's why if you go back to the chart, I talk about growing our customers category and gaining disproportionately from that growth. That's where we both grow together. So yes, will it mean that we think differently about how we invest some of that money? Yes.

Do I see some pockets of spend, which actually are not working for our customers and for ourselves and we repurpose? Yes. We have to work that through, but I'm not seeing that being more customer focused is going to be more expensive for us. And actually, in terms of the back office, I can see ways of actually making it leaner, quicker and I say even more efficient than today.

Look, I don't want to pretrial the operating framework too much. I've said that there are opportunities for us to be more cost effective. I think that's true. I think Nik had identified that with the Accelerate program. What the operating framework is designed to do, first and foremost, is how do we make Diageo a much more competitive organization than it is today. That's about capability. It's about speed. It's about agility. Yes, it's about cost. But I don't want it to just be about cost. I want to take 30,000 Diageo colleagues on a journey of how it is we make this business truly competitive again. That's the way that we'll think about it. Obviously, if there are opportunities to make it lower cost, we will take it. But I'd like you to think about that as an enabler of competitiveness rather than a way of reducing cost to invest back in the business.

Look, ladies and gentlemen, I'm getting the hand across the throat. That's the -- obviously the end of the time. Thank you very much for your questions. Thank you very much for investing the time in Diageo. I really do appreciate it.

Clearly, this is the start of a journey for me and a new team. We're clear about what the immediate priorities are. We're confident about the medium and the long-term future. We've taken with the Board support, some big decisions just recently. They give us the space to invest in the [ turnaround ], and that's important.

The onus is now on us to share with you the detail of that. Please, bear with us. Give us a little bit of time to be able to rethink that. But we'll share it with you as soon as we have it.

And with that, I look forward to seeing, I think, some of you, if not most of you this evening in the Diageo office. So thank you very much indeed. Have a good day. See you later.

Good morning, and welcome to the Diageo interim results presentation. As you know, it's my first results session for Diageo. In fact, this is my seventh week, and I'll share a few initial impressions and immediate priorities with you later. But first, I'd like to hand over to Nik to share with you the results of the first half of 2026. Nik?

Thank you, Dave, and welcome to Diageo. In the context of a continued challenging macro environment and industry backdrop in many of our markets, but in particular, U.S. spirits and Chinese white spirits, both organic net sales and organic operating profit declined 2.8%. Notably, excluding the impact from Chinese white spirits, we would have reported organic net sales down approximately 0.5% and approximately 1.5% growth in organic operating profit.

Europe, LAC and Africa delivered strong growth, but this was more than offset by NAM and APAC. Our focus on cost savings benefited organic operating profit but did not offset lower gross profit given the mix of market growth. This profit decline as well as lapping the impact of the disposal of our businesses in Ghana and Nigeria impacted our EPS pre-exceptionals, which declined 2.5%. Our focus on cash delivery continues, delivering just over $1.5 billion in free cash flow for the half year, but $164 million lower than last year due to adverse movement in working capital.

We have also declared a dividend today of $0.20 per share and at the same time, announced that we are moving to a dividend payout policy of 30% to 50%. This decision is not something that we have taken lightly, but one that we view as important in ensuring that we make the right decisions for the business for the long term. Dave will come back on this later.

Now moving to regions. The biggest challenge has been a circa 7% organic sales decline in NAM, which was driven by softness in U.S. spirits, especially in tequila, which declined approximately 23%, driven by both Casamigos and Don Julio for a number of reasons, including category down trading. Organic growth in Diageo Beer Company of approximately 7% and in Canada of just over 2% only partly offset this. I will provide more detail on this shortly.

In Europe, both volume and value growth in Turkey with double-digit growth in Johnnie Walker as we increased distribution and visibility. This was alongside Raki, which benefited from increased focus and new pack designs. Momentum in MENA continued as did growth of Guinness across almost all markets, particularly GB and Ireland. Across Europe, by bringing decision-making closer to customers and consumers, we are improving commercial execution and delivering some positive early results.

The continued impact of decline in Chinese white spirits adversely impacted sales in APAC with organic sales down approximately 11%. Excluding this, organic sales would have been up slightly.

In India, continued momentum in Prestige and Above segment brands and locally inspired flavor innovation on Smirnoff as well as format innovation on Royal Challenge, all contributed to strong results.

In LAC, we saw net sales growth in most markets, including both Brazil and Mexico. This was despite the impact in Q2 in Brazil of counterfeit alcohol incidents, which was particularly pronounced in the on-trade. More recently, we have seen a gradual recovery of consumer confidence in this market. Across Africa, we saw broad-based net sales growth across the region with strong double-digit growth in South Africa, driven by RTDs and also in Tanzania, driven by strong beer performance.

In the half, we grew or held total market share in circa 30% of markets measured by contribution to net sales. This result was clearly disappointing and was largely a reflection of performance in the U.S., which saw a 9 bps TBA share loss, which represents circa 35% of the total net sales value in measured markets.

Turning to North America. Pressure on consumer wallets and an increasingly competitive environment, especially in tequila, is having a marked adverse impact on U.S. spirits performance. Dave will come back and give you more context on this performance later, including specifically the pressure on ultra-premium tequila.

Our organic sales decline was almost entirely driven by Don Julio, Casamigos and Crown Royal. In the first half, tough comparatives plus an increasingly competitive tequila environment put pressure on results. This was exacerbated by both ongoing tequila litigation and media on additives and adulteration, two separate issues, but both negatively impacting consumer sentiment. We continue to view the litigation claims as baseless and are pushing for case dismissal in New York. We are also working with industry influencers to inform the narrative, and we are confident that our tequilas are crafted from 100% Blue Agave.

There was good performance on Johnnie Walker, driven by Johnnie Walker Blue and encouraging performance in smaller spirits brands such as Ketel One and Astral. Ketel One priced in super premium and with a consistent Made-to-cocktail platform activated at all consumer touch points, gained share of vodka and maintained spirits share.

RTDs and Guinness also delivered positive growth. RTD share gains were driven by Casamigos Margaritas and innovation from Smirnoff Sunny Days, which taps into nostalgic flavors and Smirnoff Shorties as well. Guinness gained share every week of half 1 fiscal '26 with continued participation in culture.

In APAC, performance was adversely impacted by weaker Chinese white spirits consumption as a result of market policy. Excluding Chinese white spirits, APAC would have reported slightly positive net sales growth. Additionally, and as we guided previously, we saw some impact across the region from the later Chinese New Year as well as the macroeconomic impact in North Asia.

I mentioned earlier that India delivered strong results from both core brands innovation and successful recruitment. Royal Challenge, Smirnoff and Johnnie Walker all performed well.

Finally, in APAC, although Guinness organic growth was impacted by the route-to-market changes in China and Australia, in the latter, the brand saw strong double-digit growth in distribution and record on-trade market share.

During half 1, we've made good progress with Accelerate with around 50% of the $625 million of total savings now expected to be delivered in fiscal '26. I have previously shared that these savings were expected to be greater in the second half, and consistent with this, we saw circa 40% of the total estimated savings in the first half.

Taking you through the main drivers, the majority of the Accelerate savings in the first half were in Supply Agility and cost efficiencies as well as through A&P, which I will come back to shortly. There were also some savings in overheads, but these were smaller and related to improved cost control in corporate functions as well as some headcount reductions.

On Supply Agility, we benefited from improved utilization rates, facility and logistics optimization and digital supply chain transformation, for example, using SIP, our Scotch Intelligence Platform. You will recall the other bucket we shared that would drive Accelerate savings was trade efficiency, which we have always said would take longer to come through. In the first half, we didn't see any savings from this as these savings are typically tied to renegotiations with our large customers, which are normally on a calendar year basis.

On A&P, let me start by saying that nothing has changed in terms of our commitment to investing in our brands for the future. However, we are committed to being more effective and efficient with our spend and being choiceful where we invest and where we may choose not to given the market conditions. Our tools such as Catalyst are helping us to do this and to maximize both ROI and volume. For example, during the first half, we pivoted investment towards Guinness in Europe and we reallocated investment from spirits to RTDs in Brazil.

You will have seen A&P spend down circa 10% on last year. Taking you through the reasons for this and consistent with Accelerate, we saw savings in A&P primarily from lower development costs, which were 15% of A&P spend compared with about 17.5% last year. I have shared some examples of the areas of savings on the slide. AI content using Virtual content studios, facilitating market customization at scale, procurement savings with improved rates and new contracts, Concentrated development spend on fewer, bigger opportunities, Johnnie Walker is a great example of this, which supported brand growth. And finally, smart media buying using allocation tools to maximize returns.

Let me now take you through the movement in net sales for the half year in more detail. Reported net sales declined 4% with organic sales decline and the adverse impact of acquisitions and disposals only partly mitigated by favorable foreign exchange and hyperinflation adjustments. Organic volume declined 0.9% as solid volume growth in Africa was offset by volume losses across the other 4 regions. Excluding the impact of Chinese white spirits, volumes were down approximately 0.5%.

Europe, LAC and Africa delivered positive price/mix with 1.9% decline at group level, driven mainly by the adverse impact of Chinese white spirits weakness in China and the decline in U.S. spirits, primarily due to tequila, as I talked to earlier. If you were to exclude the impact of Chinese white spirits, price/mix would have been broadly flat.

The negative impact from acquisitions and disposals was due to the disposal of Guinness Ghana at the beginning of the half and disposals of Guinness Nigeria completed in September '24 and Cîroc completed in the fourth quarter of fiscal '25. The positive impact of foreign exchange was primarily driven by favorable movement on sterling and euro, partly offset by adverse impact of the Turkish lira.

Turning now to the movement in operating profit for the half year. Reported operating profit before exceptionals declined circa 3.5% as lower gross profit and the movement in acquisitions and disposals was in part mitigated by lower marketing spend, overheads and FX benefits. Gross profit declined $324 million organically, driven by top line performance, adverse product mix, cost inflation and tariffs. Efficiencies across manufacturing, logistics and supply networks partly mitigated this with gross margin remaining broadly flat.

Lower marketing spend provided $178 million benefit to operating profit, which I talked to earlier. Overhead savings were largely due to lower indirect overhead costs given savings from the Accelerate program such as optimized IT costs.

Moving to cash. Free cash flow decreased by $164 million versus half 1 fiscal '25 to just over $1.5 billion, representing approximately half of the $3 billion guided to for the full year. This was because we lapped a very favorable movement in creditor balances in the prior year and also a lower creditor balance at the end of the half. Importantly, creditor days compared to prior year were broadly flat.

The cash outflow from maturing stock in the half was minimal as we continue to optimize investment in our mid- to long-term maturing liquid requirements.

Tax paid was lower due to lower operating profit and the timing of payments and net interest paid reduced, given both a lower effective interest rate and the capitalization of certain borrowing costs.

CapEx was approximately $590 million, a decrease of about $40 million on last year, reflecting a disciplined approach to investing in projects, including Guinness production, capacity expansion, supply agility and digital infrastructure. Our full year guidance for CapEx remains unchanged at the lower end of the $1.2 billion to $1.3 billion range.

EPS pre-exceptionals declined 2.5% on last year to $0.953, largely driven by the impact of lower organic operating profit and lapping the impact of disposals. There was also some offset from a lower tax charge and reduced minority interest. As previously guided, our exceptionals was significantly reduced versus fiscal '25 with details shared in the appendix.

Moving to the balance sheet. We closed the half with lower net debt of $21.7 billion, a small decrease compared with the balance at the end of fiscal '25. Given lower EBITDA year-on-year, our leverage ratio remained flat compared to June 2025. As a reminder, we have guided that the completion of the sale of our 65% shareholding in EABL, announced in December, is expected to delever our balance sheet by circa 0.25 turns, and we are making progress through the strategic review by USL of its ownership in Royal Challengers Bangalore. This is consistent with our guidance to delever and strengthen our balance sheet and increase financial flexibility.

Let me take you through our fiscal '26 guidance. Firstly, we have updated organic net sales growth guidance given further weakness in the U.S. We now expect this to be down 2% to 3%, which compares with flat to slightly down previously. As a result of this change, we've also updated our organic operating profit guidance, which is now expected to be flat to up low single digits. This compares with low to mid-single-digit growth before.

This includes the impact of tariffs, assuming a 10% rate on U.K. imports and a 15% rate on European imports as well as assuming that the USMCA exemption remains. However, we note that the recent ruling on tariff policy by the United States Supreme Court has increased uncertainty and potentially increased risk surrounding the impact of U.S. tariff policy, which we continue to monitor and have not updated our guidance for this.

Our tax, interest and CapEx guidance are all unchanged from what we shared previously, as shown on the slide.

Finally, on free cash flow, we have reiterated our $3 billion guidance for fiscal '26. As a reminder, this is after exceptional costs relating to Accelerate. However, it does not include an approximate $100 million one-off impact on working capital given inventory build ahead of the implementation of S/4HANA in early fiscal '27.

And with that, let me hand back to Dave.

Thanks, Nik. As I said at the introduction, I'm 7 weeks in. It's been pretty intense. It's been great meeting the team. I've had a fantastic welcome and the energy in the business is really very high and infectious. This energy is going to be crucial and a key requirement to the turnaround journey ahead.

In the last 7 weeks, I spent time in North America, in New York, Florida, Texas. I spent time with the whole Latin American team in Colombia, and I spent time in Europe, Middle East and India as well as getting functional briefings here in London. Obviously, the induction is not complete. We'll take 2 weeks out now for the results, and then I'll spend time in Africa and in Asia. We're looking to have an updated strategy proposal for the Board in calendar Q2 before sharing with the market mid-calendar Q3.

But the business moves on. And as Nik says, we face some challenges now. So I want to share with you a few first impressions before sharing three immediate priorities that will guide our endeavors before sharing with you any strategy revision.

I understand the commentary of TBA, but I'd like to focus where our business actually is, spirits and beer. Spirits, including RTD format, account for more than 80% of our sales, and if I add Guinness, we get to more than 95% of our business.

The spirits category is a very, very stable category. In fact, it's one of the most stable I've ever seen. Between 2010 and 2024, volume growth is around 13%. The significant feature of the market is the strong trend to premiumization. And Diageo deserves great credit here for seeing the opportunity and driving this trend. It was a fantastic strategy, and it developed a portfolio of truly exceptional brands.

And whilst I fully recognize that there are factors affecting this category and will continue to affect this category going forward, questions like GLP-1 and the attitude of certain sectors of society to the category, the core category drivers are still really stable. On the chart, you see the penetration frequency and the consumption profile for four of our key markets. And what you see is the penetration of spirits is really very stable. The consumption frequency of spirits is actually slightly increasing due to the different lifestyle that people now follow, a number of new occasions being in the places as people consume on the go.

But it's the serves per occasion where we see the change. And these fewer serves per occasion point to a pressure in the economics that our consumer groups are facing. So whilst they do not diminish at all factors like GLP-1 or the attitudes towards the category, at this moment in time, they show a very small impact on spirits consumption, but there is a challenge, which is broader economically.

To get under the skin of this, I've been asking the Diageo team to focus first on consumers how they live their lives before we even get to the alcohol category. And what you see is a very significant squeeze on disposable income.

If you look at the chart on the left-hand side and look at U.S. households, this is a basket of CPG staples over the last 5 years. And you see that the cost of that basket has increased by more than 25% and actually, the volume for that 25% increase is some 8% fewer items. There's a very significant squeeze for U.S. consumers, and that's before you start talking about the cost of healthcare and other costs that U.S. consumers are having to bear.

A slightly different study in the U.K. looks at discretionary household expenditure and you see the increase in the costs around the essentials, be that housing, fuel and power, transport and essential food and nonalcoholic drinks. There's a change in profile also in terms of discretionary effort. And what you see is that in our category of alcohol, the spend is flat. It's not down, it's flat. And whilst there's been inflation in the category, it's that consumption level that I talked about earlier in terms of serves per occasion that is the dynamic behind that flat. But we need to recognize that the discretionary spending power of consumers in key markets is under some pressure.

Looking at that a little more, if we start on the right-hand side of this chart, we look at the North American market, the U.S.A. market by age. Young people, LPA to 34, penetration of spirits is actually slightly increasing. The frequency is also up as people change their lifestyle, but the serves per occasion is dropping. And this is mainly due to the economic factors I talked about before. So on the left-hand side, we try and recognize that there are a number of things that are impacting our category. By far and away, the strongest is those pressurized consumer wallets.

Yes, there is some moderation in drinking and there is some impact from GLP-1s, but it's small when you think of spirits specifically. We need to keep an eye out on the emerging substitutes. But as we speak today, at a global level, these are a small impact on the category.

So if that's the category, how have we done in this very stable space? The chart shows you Diageo's market share, again, going back to 2010. And with all of that drive in premiumization that you know about, our core share of spirits is up 118 basis points to 16.7%. However, if I include RTDs, then our share of total spirits has come down by 46 basis points. The majority of consumers come to RTDs with the same motivation of spirits. They appreciate the convenience, the consistency and the control and very importantly, the lower out-of-pocket expenditure that accompanies those purchases.

So we have very stable shares in a very stable spirits market, but with a premium portfolio, which over the last 5 years has relatively got slightly more premium given the price mix changes illustrated on the bottom of the chart.

So if we look specifically at the U.S. market as a key example. The chart looks at the percentage of the market sold at each price point and compares the Diageo portfolio contribution. So for example, in the U.S. spirits market, 21% of the market is sold in units $45 and above. For Diageo, that percentage of our portfolio is 31%. In tequila, the concentration is even more significant. 35% of the market is above $45 and for Diageo, that's 70%.

As a consequence, in the mass market part of the portfolio, we are significantly underrepresented. This is both a challenge and indeed an opportunity. The final thing I would pull out of this chart is to look at the sales below $10. This recognizes a growth in small packs. And again, as economic pressure has found its way into the U.S. category, we see a down trading to smaller pack sizes. And here, if you look at U.S. spirits, 9% of the market is now in those pack sizes, but Diageo's portfolio is only contributing 5% from that particular segment. Again, an opportunity for Diageo.

If we move to RTDs, this is an increasingly relevant role in the spirits socializing occasion. On the left-hand side, significant to see how Diageo, who created this category with the launch of Smirnoff Ice circa 26 years ago, drove a very significant share, but a lot of focus on RTDs since around 2008 means that we now have a share of RTDs, which is below 10% from a high of more than 25% at the time when RTD share of the spirits market has increased significantly and is now around 15%.

If you take those RTDs and see where the growth is coming from, you can see that of the $8 billion of growth between 2021 and 2024, 50% of the growth is in the higher ABV ready-to-drink segment. Again, giving some illustration of what it is, is happening in terms of attitude to alcohol. Young people are choosing RTDs, but they are choosing RTDs with higher ABV, which gives some indication of their attitude towards this category. We believe that there's a very significant and profitable opportunity for Diageo in RTDs, but we have work to do.

I'd like to talk a little about Guinness. This is a brand I thought I knew from the outside of Diageo, a brand that I respected and admired. I thought it was a phenomenally strong brand before I joined Diageo. Now I can see it from the inside, it's even stronger than I thought. It's growing very strongly everywhere. In North America in the last period, it's grown by more than 15% and is the fastest-growing beer brand in North America. Its historic return on invested capital is very high.

But you see from the chart on the right-hand side that we are geographically constrained. Eight markets are more than 85% of the business, and if you try to buy a pint in London, you also know that we have some capacity constraints, too. This capacity and geographical constraint is an issue that we need to address and quickly. But please be in no doubt what a phenomenal asset I think that Guinness is.

So with that simplified overview of reflections, I'd like to share my thoughts on our immediate priorities. Immediate priority #1, Competitive Category Strategies, winning with relevant brands. Now I've chosen these words very deliberately, Competitive Category Strategies.

Diageo is known for its focus on brand. I want to keep the focus on outstanding brands, but I'd like to add the category lens. It's how our customers think and buy. It's how our consumers navigate their off-trade purchases, and it's the lens through which we can focus and leverage our innovation resources.

Relevant brands because I believe there are some proposition spaces that are opportunities for Diageo, but it's also relevant through the lens of price point. And that's particularly relevant given the economic backdrop that I've shared earlier. So we'll continue to invest in the premium portfolio, being no doubt, the premium portfolio is a massive asset. We will continue to invest in it. But we will also, in addition, explore new portfolio opportunities that might involve some price repositioning, and it might open up new proposition spaces.

In addition, we need to sharpen our price pack architecture and particularly address the opportunity that I've already referred to in the growth of small packs. The idea is that we build truly competitive category strategies. And I'd like to illustrate one of those by sharing an example from the Middle East. This is the market UAE. The team in UAE have been thinking about how it can serve all consumers in one of the markets which has really quite a strong premium consumer and brand portfolio already.

Let me briefly explain the chart. What you see is from left to right, all of the brands in the UAE market. The shaded columns relate to the volume of that brand within that market and the red line is their price positioning per liter. What you see is in the from and to, that actually what we've done, what the team in the UAE has done really very well, is introduce new premium offerings, Johnnie Walker Black Ruby and Bulleit to show two on the right-hand side, but also a small repositioning of price on Johnnie Walker Black Label and Red Label, but a significant repositioning of the VAT 69, Black & White and J&B Rare brands against a more value-based opportunity.

So what we do with this portfolio is we appeal to reach and service the broader consumer universe within that market. And whilst the percentage margin of the portfolio in today's portfolio is slightly dilutive to that which we had before, the absolute quantum of gross profit is significantly higher. Put it another way, whilst the percentage margin in the new portfolio is lower, the value creation for shareholders is significantly greater in that new portfolio.

Immediate priority 2, customer, customer, customer. If there is one surprise over the last 7 weeks, it's the low level of investment in how we build and execute our business with our customers. In the on-trade, we know that this is key to how we build our brands. Our capability here was dismantled understandably during COVID given the closure of that sector. But our build back has been slow and patchy and therefore, leads to an opportunity. I've seen the power of this done exceptionally well in Latin America and the Middle East, but we need to build that capability and invest in it around the world.

Our customer service in the off-trade is frankly really very poor. I've shared with you here the customer service levels I experienced in North America, Latin America and the U.K. and they really are not acceptable. When we're looking for growth, the idea that we can't service the demand that's there is both a source of significant regret, but it's also an opportunity for us.

A big part of this is Guinness and the capacity constraint I talked about earlier, but it's not all. And the systems and processes that we have in place that facilitate the engagements with our customers, frankly, are just not fit for purpose. And if I told you that 60% of all the orders that Diageo enters are entered manually, it would give you some semblance for how developed those processes are. We need to address this. We need to start to build joint business plans for the development of the business, but also the execution of the business. And ultimately, our approach to our customers must be that we grow our customers' categories, and we look to gain disproportionately from that growth. We grow with our customers, a significant opportunity for Diageo.

Immediate priority 3 is the redesign of the Diageo operating framework. Feedback inside of Diageo is really very loud that we could improve the clarity of our operations, global, regional, local, clear accountability, clear responsibilities, there's an opportunity for us to be clearer. That clarity will help us in our agility. A lot of the time cycles inside the business are not quick enough, and there's an opportunity for us to design a much more agile Diageo operating framework.

And when I look at it from an effectiveness point of view, also, there's an opportunity for us to be better. That effectiveness is either in the output and some of that you've seen in what I've said around our engagement with customers. But if I was also to talk about our innovation process, I would say that we have a lot of very small projects, and there's an opportunity for the effectiveness of the innovation part of our business to be significantly more impactful.

There's also an opportunity more effective in terms of cost. And again, I've given some indication of that in the customer space, but there are also other areas of the business where I see significant cost opportunities. If I give you a small example, I was in India recently and saw that the cost of running the payroll system for Diageo with circa 30,000 employees is 10x more expensive than my previous place of employment that had more than 15x that number, gives you some idea of the opportunity.

But we're redesigning the operating framework also to identify and invest in the differentiating competencies that will drive a more competitive Diageo. We need to build, sharpen and constantly invest in a competitive edge. And we'll do that by always being very disciplined about how we deploy our capital. Those of you who know me from my Tesco days know that I take this responsibility really very seriously.

So overall, the opportunity to redesign the Diageo operating framework is through the lens of how we can build a more competitive organization that is focused on shareholder value creation.

So in summary, I find Diageo to be a very strong business with an enviable position and lots of energy. The market provides significant opportunity, but we have some significant work to do. We'll start by focusing on the portfolio and the category strategies, our customer relationships and our operating model.

It's true the spirits market has some headwinds, principally economic, and there is also a small impact from GLP-1s and changing lifestyle. But our leadership position is strong and there's ample room to grow. And we will go on this turnaround journey by maintaining very strong capital deployment discipline.

On this last point, let me say a few words on the Board's dividend decision. Firstly, this is not an easy decision to make, but we believe it is the right one. The North American market is challenged. Our portfolio needs some time and investment to make it more competitive. At the same time, we need to invest in our business, specifically Guinness' capacity and capability investment. We want to do both of these things and strengthen the balance sheet.

We will make disposals if appropriate, but we will not sell brands cheaply.

All this leads to a change in the dividend policy. It gives us the space we need to turn around the business and the optionality around capital returns to shareholders as this turnaround unfolds.

Thank you very much for your time and look forward to your questions later.

Good morning, and welcome to Diageo's Q1 trading call. [Operator Instructions] We're now ready to start the call. Sonya, please go ahead.

Thank you. Good morning, everyone, and thank you for joining us for Diageo's Q1 2026 Trading Statement. I'm Sonya Ghobrial, Head of Investor Relations. And today, I'm joined by Nik Jhangiani, Interim CEO; and Deirdre Mahlan, Interim CFO. Just to remind listeners on the call that in the discussions today, the company may make certain forward-looking statements, including those that refer to our plans and expectations. Please refer to this morning's announcement for more details, including factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. Hopefully, you will see in our press release released this morning.

I'll hand over to Nik and Deirdre for some brief comments on the quarter before opening lines to those who would like to question, but those who would like to ask something, the dial-in details are in today's release. As a reminder, if you can stick to one to each in the Q&A session, that will be appreciated. And hopefully, we can get through more questions this way.

With that, over to Nik.

Thanks, Sonya, and good morning, everyone. Thank you all for joining Deirdre and I today. Let me start with a quick overview of our results. In the quarter, net sales was flat on an organic basis, strong organic net sales growth in Europe, LAC and Africa. It was offset by weakness in Chinese white spirits, impacting Asia Pacific results and softer performance in North America as U.S. spirits showed a further decline, reflecting a weaker consumer, worse than we had planned for.

While we made progress in Q1, we are clearly not satisfied with the current performance and are stepping up our actions with urgency to drive growth while staying focused on what we can manage and control. We are well advanced in sharpening our strategy and are implementing the number of initiatives, not just to navigate the near-term challenging backdrop, but also better position Diageo for the future by driving growth across the broad portfolio, ensuring that we meet consumer occasions of the future.

I am pleased with how the work on advancing stronger commercial execution is progressing with encouraging results from this already coming through, especially in Europe and in conjunction with our distributor partners. And importantly, our Accelerate program is progressing well at pace and we will share some examples of the work and early wins on this shortly. As you will have seen in today's release, we have updated our full year guidance, and I will come back to that later.

Let me now hand over to Deirdre for some more details on our performance.

Thanks, Nik. It's a pleasure to be back at the at the -- to be speaking to all of you today. At a group level, organic net sales in Q1 were flat, reflecting weakness in Chinese white spirits, which adversely impacted group sales by about 2.5%. Positive organic volume growth of 2.9% was offset by negative 2.8% price/mix driven largely by negative market mix given the impact of Chinese white spirits. Excluding this impact, price/mix would have been relatively flat, demonstrating our to -- focus to do the right things for our brands. .

Reported net sales of $4.9 billion were down 2.2% versus last year and were negatively impacted mainly by the Guinness Nigeria disposal and the Ciroc North America transaction. In the quarter, the impact of foreign exchange was negligible. Looking at net sales across the regions, we saw solid organic net sales growth in Europe, LAC and Africa, offset by North America and Asia Pacific. In North America, organic net sales declined 2.7% with U.S. Spirits down 4.1% and the Diageo Beer Company up 9.2%.

As a reminder, we set with fiscal '25 results that we had planned for a cautious U.S. environment. However, the quarter was weaker than we had planned as the economic environment continued to weigh on consumer sentiment. Additionally, we saw increased competitive pressure, particularly in tequila. The weaker overall results in tequila reflected a number of factors: lapping tough comparatives restocking and size extensions, consumers trading down, general category weakness as well as increased promotional intensity. Scotch and our ready to drink and ready-to-serve portfolio delivered strong growth.

In Europe, we saw good organic net sales growth of 2.5%, driven by sustained mentum in Guinness Draught and Guinness 0.0, as well as strong net sales growth in spirits led by Turkey and Middle East North Africa. I want to -- touch to a solid growth overall driven by Johnnie Walker. We restructured some markets in Europe as part of Accelerate to be closer to the consumer and customer and drive stronger in-market commercial focus. We are starting to see some encouraging early results from these changes.

APAC organic net sales decline of 7% and 10% was driven by Chinese white spirits in Greater China with reduced consumption occasions across the -- category, primarily as a result of market policy. The weakness in Chinese white spirits adversely impacted regional net sales by approximately 13%, and around 2.5% at the group level. Double-digit growth in India and good performance in other markets only partly offset this with scotch, driven by Johnnie Walker performing well across the region.

In LAC, Organic net sales growth was 10.9%, led by double digit growth in Brazil. The consumer environment continued to stabilize in Mexico. Scotch growth was strong, driven by Johnnie Walker in Brazil. There was also a very long growth in RTDs led by Smirnoff Ice, also in Brazil. And in Africa, where we reported organic sales growth of 8.9%, we saw a continued broad growth across our 2 major markets of East Africa and Southwest and Central Africa. Price/mix declined due to market mix.

As we said in today's release, we're making good progress on accelerating our program to strengthen Diageo's foundations for long-term sustainable growth launched in May this year. Momentum to date reinforces our confident to deliver $3 billion free cash flow guidance in fiscal '26 and onwards. Specifically, work undertaken on cost efficiency, process simplification and stronger analysts increases our confidence that we can deliver productivity and cash goals.

Rigorous application and focus on established tools and capabilities are facilitating greater discipline and where we prioritize allocation of A&P to drive future growth. For example, in GB, on profitable markets, we have halved our A&P development spend and reduced the number of agencies we use by 30%. We're also making strides in optimizing trade spend with learnings from early markets, including GB, but also in Australia. Learnings from these efforts are being shared across the business. We will share more on progress on excelling in our half year results in February.

Now I'll hand back to Nik.

Thanks, Deirdre, and I can honestly think it's great to have you back in the business, partnering with me and the rest of the exec. So let's go back to updating on a slide we shared earlier this year. We're in on our work to sharpen our strategy and drive growth. As you can see, we are continuing to work on improving operating leverage and the work focused on strengthening commercial excellence is well underway in a structured and sustainable manner. Our work evaluating and building capabilities is also well underway with an extensive review of our operating model well advanced. .

We have established and implemented a clearer framework for decision making across the center market region, which will bring with it speed and agility. We're continuing to work on end-to-end processing, including defining future processes and ultimate process owners to drive clear accountabilities across the business as well as our global business operations team.

So turning now to full year guidance. We have updated organic sales and profit guidance for the expected impact from Chinese white spirits as well as to reflect the weakening in the U.S. consumer confidence, which extended beyond what we had expected. As a result, we now see organic net sales growth flat to slightly down for the full year with the decline in organic net sales greater in the first half. We still expect to drive positive operating leverage but now expect organic operating profit growth to be in the low to mid-single-digit range for fiscal year '26.

Reflecting our full year net sales guidance, we expect a stronger second half with the first half showing a decline. Let me take you through some of the moving parts. Firstly, adverse market mix will be more pronounced in the first half as a result of the dynamics being seen in Chinese white spirits and -- the as well as the stronger growth coming through from India, obviously, at a lower margin. Secondly, Accelerate savings are skewed to the second half. However, given the current environment, we are moving at speed with our initiatives. So that circa 40% of the $625 million commitment of savings that we made from the Accelerate program will now be delivered in fiscal '26.

The timing of delivery is ahead of our prior guidance and reflects the increased pace across the business. We have spoken to prioritize allocation of A&P spend and being more focused around both short-term and long-term returns. Given seasonality due to the key trading period of OND, these savings will be more pronounced in the second half as well our changes in trade investment terms and conditions. Our focus on building stronger free cash flow remains unchanged. We continue to expect circa $3 billion in free cash flow for the full year supported by the Accelerate program, but also by actioning the work to date on managing maturing staff more dynamically, our A&P spend, as I just discussed, CapEx and broader cost discipline.

As you see, we have updated fiscal '26 expected CapEx to the lower end of the guidance range of $1.2 billion to $1.3 billion. We remain committed to returning to well within our target leverage ratio range of 2.5 to 3x, no later than fiscal '28. As I have said this -- as I said this before, this will be supported by appreciate -- and selective disposals over the coming years. We have seen U.S. sales released yesterday regarding the strategic review of our investment in SMB and we're very pleased with the pace with which this will move. This is a differentiated and valuable asset for many investors, but clearly noncore to our Alcobev business in India.

We're also moving forward with other noncore disposal intros -- and we'll provide further updates as and when appropriate. We are still excited by the opportunities to accelerate growth in RTDs, Guinness, and Guinness 0.0 and of course, activation in showcasing our brands, both NAM and LAC during FIFA 2026.

So taking everything together, while there was some good progress in the first quarter, there's still more for us to do, and we need to go faster. We are acting with pace, sharpening our strategy to drive broader growth, better results and ultimately improved shareholder returns. We have a fantastic portfolio of iconic category-leading brands and we can and should do better with a focus, rigor and sense of urgency on the work well underway at Diageo to do this.

With that, let me hand back to the operator to open the line for questions for both Deirdre and myself.

[Operator Instructions] The first question comes from Simon Hales of Citi.

Nik, welcome back. My question is on the U.S. really. I want to understand a little bit more the moving parts in the quarter and how we should really think about the U.S. as we move into Q2 and in the context of your revised guidance. Specifically, I mean you highlighted that U.S. spirits declined 4.1% in Q1. However, some of that was driven more -- some of the underlying performance is driven by some benefits of pull on tariffs and some stocking ahead of OND. How do we think about the unwind of some of those phasing benefits in Q2 and beyond? And could you share an underlying depletion rate for Q1 and perhaps what the exit rate was as we've headed into October, please? .

Yes. So I mean, clearly, a lot of moving parts in the U.S., as you just called out, particularly with some tariff prebuy as well as obviously the seasonality with OND. But let me hand over to Deirdre who can give you some more details on some of the numbers and how you should think about the Q2 and half 1 in particular.

Okay. Simon, in North America, we did have net sales a bit ahead of depletions as is typical this time of the year. So our depletion addition -- NSV was down about 7% and net sales, as we said, down about 4%. The difference -- they're surrounding there. The difference is about 2.5 points. That's not atypical this time of year. As you know, every year, there's always some changes. Last year, we had some restocking of some Johnnie Walker SKUs in the quarter. This year, we did have some pull-forward relating to tariffs. But there's also, as we mentioned in the release, some weakening depletions overall as we're seeing the categories decline in particular to tequila. The.

Tequila category is declining, and we have a very big position in tequila. And so you can see that. So we are getting some depletions, I think, declining ahead of our net sales. We don't really manage this on a quarter-to-quarter basis. When we get to the full year, of course, we're always making sure that -- I mean, the full -- the half year, okay, after the end of OND, we, of course, work to ensure that we have a balance between ships and depletes. So of course, that some of this depends on the activity during OND, the execution during that period and how big the holiday is. So we will have a little bit of unwind of tariffs, although that will be material in Q2 because some of it already unwound in the first quarter.

So we had -- it was -- it came in early in the fiscal year, and then some of that pull-forward for tariffs unwound in the quarter, although there's still an overhang. So there will be a bit of that. And I think we're watching carefully what's happening with consumer takeoff in the period, which will be the biggest factor.

Got it. So taking all that into account, Deirdre, is it fair to say if the depletion rate continue to be at minus 7 or there or thereabouts, and you had a little bit of unwind, we should be at the moment, depending on what happens with OND take off, be thinking about Q2 U.S. spirit sales being down perhaps high single digit.

Yes. I mean it's really hard to say. I don't want to forecast what the depletions will be. We are actively working, of course, to have the best execution we have in the quarter. And it is the holiday. So the first quarter is frequently not the strongest quarter in spirits as we all know. So going into the second quarter, I'm not trying to dodge your question. I really just think it's unclear what it's going to be. We don't see anything that would cause a significant change in the current trends. They are weaker, but we're not seeing a significant change in that. And of course, we'll come and give you the update on the half.

Simon, I would just pick up on the point that Deirdre made because I think it is important to talk about how well we are showing up from a commercial execution perspective. And I talked a little bit about that. And I think the work that the team continues to do is we look at our route-to-market evolution, right, and how we need to continue challenging that because it's never always a fit-for-purpose in what might be a changing environment, and I think we're looking at that as well. But clearly, where we have our business development folks, either on the ground ourselves and or through our distributor partners, where we've really stepped that up in terms of feet on the street, we can see stronger performance in those states versus some of the controlled accounts.

So that is what we're focused on. How well can we show up and how well do we drive that execution. And I think the team is doing a great job there. But to Deirdre's point, it's very difficult to predict what the consumer will continue to feel and confident about in terms of what they want to spend. But we're staying close to that.

The next question comes from Sanjeet Aujla of UBS.

Welcome back Deirdre as well. I want to dig a bit deeper into tequila in the U.S. You called out increased competitive pressure. Can you just dig a bit deeper into what you're seeing there and what interventions are you putting in place to try and improve at least your competitive performance there between Don Julio and Casamigos, please?

Great. I'll kind of give you some overall perspectives and then Deirdre will give you some numbers in terms of what we're seeing. So I mean clearly, the tequila category as a whole, remember, we were outperforming the category quite significantly last year, right? And particularly with Don Julio. So we knew going into the year, all else being equal, is still going to have an issue with the comps in terms of some of the restocking by distributors as well as some of our size extensions, right? But clearly, consumers are trading down, all right? And we're seeing that in terms of the category. And we've had some really strong anecdotal but also some data points that you can see in terms of just shifting out of the category potentially and going into RTDs and/or then using tequila as kind of a chaser, so that really what that means is their rate of purchase is going to be that much lower, right? .

I think competitive pressure has increased. You're seeing that much more in terms of both frequency and depth of discounting. But clearly, we're focused on all of those elements, right? And I think this is where continuing to work hard on our portfolio. Astral is a great example of what we want to be able to step up as we think about that shift from ultra premium into super premium or even to premium, right? And how do we meet the consumer where they are, but still continue to drive affordability both from a cash outlay perspective with smaller sizes, which continue to do well and again, show up great in terms of our execution.

So I don't know, Deirdre, if you want to add some stuff on some of the numbers.

I can give some specifics about that. So if you look at what's happened -- well, I'll talk about Don Julio specifically since that was the biggest change in the quarter from a consumer takeoff point of view. The share moderation in Don Julio in the quarter is about 3/4, about 75% of it is due to comps, and this is what Nik pointed out. And the comps show up in 2 different places. One is in May of 2025 is when the small sizes were launched. So -- and of course, distribution was building during that period. So the peak of that is really around September.

So we started really lapping those comps in particular, going into the September, but you could see it actually in the numbers, if you looked on it month-over-month, starting in June. And so the other thing was the big ramp up, an increase in share in Reposado last year, which were lapping. So those 2 things combined have a significant impact. The other point that I'll just share is the category itself. If you look at what's happening to tequila as a category, it was growing, I think, 10% in 2024 and then 6% in September 2025 -- and I'm sorry, in 2023, 10%; in 2024 6%; and now it's down to about 3% or just under 3%.

So there's some category weakness the tequila category, which had transcended most of the core spirits category for the last couple of years is now -- can no longer define gravity. I think, with respect to what's happening overall. So there is some reduction in that, given how strong our position is, you're seeing overall that come down. And the final point that I'll make is the train down. The consumers, of course, as I mentioned, are under some pressure. So we're seeing a bit of a shift between the super premium where our products sit. Don Julio and Casamigos, the premium, okay? And so we're sitting at a point where we were getting more growth from super premium previously. And if you look at the 12 months versus the 3 months, that has moderated and the purchasing of premium has gone up for super premium, which is about $19 to $35, which is where Astral is to Nik's point, but Don Julio and Casamigos far above that.

And so I think we are seeing the effects of all 3 of those things. And so in terms of what's going to happen, I think the lapping part, of course, will start to moderate. So that impact on our performance will moderate, but I think we're going to continue as long as the consumer is feeling some pressure. I think we're going to continue to see a bit of consumers moving to small sizes instead of buying the larger sizes and also perhaps buying at other price points. We are now -- again, as Nik pointed out, leaning into Astral. So we do have offers for when the consumer makes those shifts. But it is quite a dynamic category at the moment in terms of consumer behavior, and that's what you're seeing show up in the numbers.

One final point is on Casamigos because we really didn't talk about that. I think we've mentioned in the past that we've been working to get our Casamigos pricing in the place that we think is appropriate. We have taken those actions. It does take some time for the retailers to reflect that on the shelf. In some places, we're seeing that happen more rapidly than others and those adjustments are still coming through. Where we are getting -- where those price adjustments on the shelf are coming through, we are seeing improved performance. And of course, we've got a great launch from Casamigos RTD, which we feel really excited about. And I think it's a sign of the strength of the brand overall. I know that's such a lot of information. So probably some in back up.

I think that was really helpful, Deirdre because it really helps understand what's happening in the category and how much of that is really the lapping, right, which is important. But there is a softening of the category. But I am excited about what we're doing with the RTDs and Casamigos to Deirdre's point because that really will help continue building the brand halo and bring people back into the spirits. So that's exciting.

One last piece, I just wanted to make sure that we're all talking about in the most constructive way. You've probably seen the whole issue around the lawsuits and the credentials of tequila. And I think the legal team is doing a great job, and I won't get into that in terms of the focus around dismissing those class action suits, which clearly are completely baseless. But if you do think about the element of what we need to continue managing in a dynamic environment is also how do we make sure our customers, the trade consumers all feel really good about the quality of our products and the credentials of our products. and the fact that it's all made from 100% blue gate -- right?

So I think the team in the U.S. is doing a great job with a lot of action that you'll start seeing around that to ensure that all of those 3 constituents. Some are trading our customers in particular, but our consumers feel really good about the credentials of our brand, but more on that in days, weeks, months to come.

The next question comes from Andrea Pistacchi of Bank of America.

Yes. Nik, Deirdre, welcome back also from me, Deirdre. So my question is on the EBIT guidance, please. You're adjusting this guidance, but only slightly, and you should still be able to deliver low to mid-single-digit EBIT despite the negative tariff impact, probably negative country mix, given the baijiu -- situation, given the U.S. being soft. You said that you're accelerating efficiencies and my sort of quick calculation is that with 40% of your efficiencies delivered this year and a 50% drop-through of that, that's worth about 2% to EBIT. But I was wondering, efficiencies aside, could you talk a bit about the other moving parts that could support margins? Is input cost a tailwind this year, particularly agave, some of your peers like Cerba seeing material benefit from agave. Or maybe are there other factors also affecting margins? And what is your level of confidence on this new guidance for the full year? .

I mean I think, listen, firstly, to be very clear, we have a very good level of confidence because we wouldn't have come out with that if we didn't feel good about the actions that we're putting into place. So you're right in terms of your calculation from an angle of Accelerate. But remember, we've kind of said circa 40% on that anyway. So again, we'll continue to look at that dynamically, in terms of that element. And remember, what I had talked about when we talked about Accelerate savings, we have been very clear from an angle that we don't expect to be reinvesting a lot of that in -- one, and so you'll see that all kind of really drop-through as we continue to look at what we need to do in '27 and beyond on digital, on more feet on the street, commercial execution, et cetera.

So that's good. But I would say to you, you're right in terms of the mix of markets, and I called that out in half 1. But I do think we are seeing some stronger growth across whiskey, in particular, and you've seen us talk about Johnnie Walker, for instance, and it is helping from a margin perspective. I think we're also looking at broader cost discipline outside Accelerate in terms of OpEx spend. And I think those elements all give us the confidence they can deliver on that guidance for operating profit as well as the fact that we continue to be very focused on cash, and I'll come back to just reiterate our commitment to deliver the $3 billion of free cash flow, right?

We're the -- thing that we looked at with EBIT, but also what we've done on maturing liquid, and we talked about getting more dynamic in terms of how we think about planning and what we're laying down, CapEx, et cetera. So I think we feel good about both those levels both on free cash flow and EBIT. I don't know if you want to add anything, Deirdre.

I'll just throw in a couple of things. Look, as we've said throughout this, the kind of market conditions right now are quite variable and somewhat unpredictable. That has been the theme, my guess is, so it's called it bit -- and that has continued in different ways in different places. And so what we are focused on is making sure that our brands show up best possible way in the markets and controlling what we can control, which is our cost base. So we're wanting to make sure we're very efficient on driving cost. This is what the Accelerate program is all about.

And also to make sure the investments, whether it be in trade spend or in marketing are fit for purpose. And that's a big piece of the work that we've been doing. I referenced some of it in my remarks about looking at how we can ensure that our development costs in A&P are not too high and that the A&P that we are spending is getting us -- and Nick mentioned this, the short- and long-term returns.

We'll talk about that more as we get at the half as some of those programs continue and we're sharing learnings from the early markets across the other markets. So we can come out with some specific examples at the half. But what I can say is we are being able to see the cost through our investments as well. And that's part of -- that's what is giving us confidence that even with some of the weaker market mix that we're still going to be able to deliver in that range.

Okay. But I gather it's not -- sorry, agave is not a big factor, not one of the major factors, and it's efficiencies and all the things you've gotten through now. .

It is well, there is a factor of that. I wouldn't say that's a main factor, right? And remember, we just talked about some of the challenges we're seeing in tequila, right? But remember, just to be clear, what some of our competitors might be seeing could be different in terms of how we buy, right? And we've talked about that before, right? If we were clearly on spot market only, absolutely, we'd be seeing a lot better of that comes through. But again, we are managing this category for the long term, right? So the combination of what we have with our own plantations, what we have with our own contracts, and what we will continue to benefit from in terms of spot pricing, not just for the sale but for the future as well, it will be that balance, right? And I think that's the way we look at it. So it's a factor, but I wouldn't say it's the big driving factor in our numbers.

The next question comes from Mitch Collett of Deutsche Bank.

Deirdre, welcome back. I think you said, Nik, that you have been able to reduce A&P in GB, I think you said 50%. So I'd be interested to know when did you manage to make that change? And any thoughts on the impact of that scale of reduction and what that tells you about the opportunity to say and to be more efficient with your marketing spend in other geographies going forward? .

Yes. Thanks for the question. I think just to be clear, I don't think we said we were able to reduce that by 50%. In fact, Deirdre made some opening comments where she talked about, we have that development cost which is circa, let's say, 15% to 20% of the total spend that we would have in A&P in that market. and we've reduced the number of agencies we use by 13%. So just to be clear on the numbers.

Having said that, I think we're challenging as both Deirdre and I have said across all our markets, how are we truly looking at investing behind growth, how are we allocating with the One Diageo mindset in terms of where that growth is and what are we going after and very much also looking at those short-term and long-term returns in terms of through the line spend. Because I think for a while, we've been focused on one element of that spend, which is just the media spend as opposed to through the line. And that's where it shows up that when we also think about how well are we spending our money on commercial A&P and on trading investors. And that's the work that we have done in Australia and then we've replicated that work in GB, and we'll be taking it into the other European markets. And that's what I talked about in terms of being more second half weighted in terms of the opportunity that we see there. So hopefully, that clarifies that confusion, Mitch.

Yes, understood.

Yes. I mean, again, I think it's very important that we just come back to the bigger point here. We are a branded consumer goods company. We see the level of spend that we need to have to continue building and protecting brand equity as quickly important. So Deirdre and I are very focused with our presidents and our markets around are we spending that appropriately and are we getting the best bang for that. I actually truly believe from a dollar spend perspective, we continue to have an opportunity to get much more for less in terms of dollars that we spent, and that's what we're focused in on.

And remember, we're also not going to be shy if there is a reason to pause in a certain area, and come back when we see that growth coming back, for instance, right? So that's why we're being very dynamic with that whole level of spend without in any way killing our brand equities.

The next question comes from Olivier Nicolai of Goldman Sachs.

Deirdre, welcome back. I just got 1 question, which is a bit of a follow-up, but it is on the Accelerate program. And if you could give us a bit more detail on some concedes -- going to help H2. And then on A&P specifically, which is related to Accelerate, how confident are you that you can get some savings while also keeping your share voice the same compared to your competitors? .

I'll give you a couple of comments on that. So I think actually your level of question around how confident are we, we're extremely confident because that's what we've actually been working on probably since the early out of this year and have been refining those plans and hence, we feel with the analytics and the tools and what we're going after, we feel very good about delivering that.

I think to your question around some specific examples, right? We've now done some really good work around our trade spend, okay, in some of the larger markets where that spend is there. So I'm going to talk about Australia and GB, for example. And we know that some of that is not generating, forget about returns for us, it's actually not even generating returns for our customer. So is that the best and prioritized use of our cash or is there better way we reallocate for that spend and drop some of those savings to the bottom line, but still be able to support what we might need from a customer activation perspective.

On the A&P, I think using our tools more effectively to look at through the line effectiveness of that dollar spend is what I was just referring to as opposed to just the share of voice from a media perspective is what we need to be thinking about because it is also how we show up and activate at the point of SIP that creates a lot of excitement around our brands. And this is where the work that we're doing around commercial execution, starting up with the off-trade, but being very focused in a structured way around understanding our outlet universe, segmenting out in the universe making sure our portfolio is right and then activating there is a great way to build habits and in some ways, amplify our share of voice through point of sale, right?

So those are the things that we're doing that give us the confidence around that area. The update that I talked about was the work that we've been doing on operating model and framework. And those might sound very wooly, but it is critically important because those are elements that help us change how we work and the culture and speed and agility with which we move. So clarity of decision-making, where does that sit, right, bring speed and agility that allows us to move to make quick decisions in terms of how we need to allocate resources more ruthlessly, back to that One Diageo mindset and supporting where growth is as opposed to where we might have been working in the past where it was very siloed within the region and/or in the market, right?

So those are some of the things that will start giving us casual results, but those sometimes a little softer, that's how we change the culture of this organization as well. So we felt very good. And I would say it's not just Deirdre and me, I would say the whole exec team is coming together in a very different way in terms of how we're thinking about how and where we allocate resources jointly together for the best interest of Diageo. So that's some of the color there. I don't know if you want to add anything, Deirdre.

The next question comes from Sarah Simon of Morgan Stanley.

Just had a question on the margin and the operating leverage point. Can you just confirm in terms of -- I think you said, Nik, that you're going to deliver 40% of the savings in the quarter -- sorry, in the year. And I think, if I'm right, the previous guide was basically equally spread. So is this -- you're basically getting more savings earlier? That was part one. And then secondly, if U.S. depletions and consumption has got a bit worse, does that not imply that you're going to work through pre-tariff sold in stock. Are you going to have less of a tariff impact across the year than you previously anticipated? Just want to understand that.

Sarah, to your first question, you're absolutely right. That's what we've said. We've accelerated some of that work on the savings. So versus circa 1/3 that we would have seen come through. And remember, again, just that point around, we had said we would see that in the earlier part of the program dropped to the bottom line. That's now circa 40%. And again, that's a rounded number. So that's where we are. I don't know if you want to, Deirdre, on the depletions point.

Look, I think the North American depletions point, the prebuy or where we saw the pull forward was in this year. So I think it's just going to wash out in the year. I don't think it changes what we have said originally about the tariff impact. I think that was already considered when we gave the kind of pre-mitigation numbers, which was around $200 million pre-mitigation. But I don't -- that is all being managed in the business. But the prebuy, which I mentioned was in the first quarter, some of which is already unwound. The rest will unwind in the second quarter. I don't think it changes the total amount in this year. It's just a question of where it lands in the quarters.

The next question comes from Trevor Stirling of Bernstein.

Diedre, let me reecho the welcome back. Just return to something you said earlier, Deirdre, you talked about depletions down 7. Have you any estimate what the sellout is doing underneath that? I presume depletions, you've got some element of retailer destocking because they had pre-bought ahead of tariffs as well. But have you any estimates around what the sellout is on that minus 7 depletions.

You mean the consumer take off because the depletion number is the sales from the wholesaler to the retailer. So that is actually showing that a sale -- the consumer data, I mean, you can see what's happening across core spirits. I mean I think core spirits, if you take out ready to drink and ready to serve is softening slightly. And within that, of course, we have some good performance. I hold this out, I think, in the -- or Nik did in the presentation, where we have some good performance in -- Johnnie Walker was good for us in the quarter, Ketel One is performing well, we have some improvement across rum as well. .

But overall, I think you're seeing the weight of our share impact in tequila, where tequila is softer. I spoke about a bit of that earlier in the Q&A. But what we are seeing is just some -- and this is why we called it out in terms of our thinking about what's happening in North America. We are seeing the consumer a bit weaker than we expected. Everyone was looking for stabilizing core spirits. And I think the core spirits continues to be soft to slightly softening with the better performance coming in ready-to-drink and ready to serve.

And I think that, again, is an indication of what about our longer amount the consumer moving to formats and to types of application, where the formats are different, and that's creating some weakness in core spirits. We're not anticipating an improvement or degradation really from that place. We're just launching carefully and, of course, ensure that our brands show up in the right place at the right price with the right kind of presentation in terms of execution. So again, we'll come back at the half and talk more as we see how the holiday as we know that's really important. We all do in this sector. So we'll come back after that and then talk about how we see the rest of the year for that.

And then just stepping back from the shorter-term piece there. I think what's important is, can we understand the importance of getting more balanced growth across our broader portfolio, right? So we are really looking at the work through our sharpening of our strategy is how do we focus around broader recruitment? I think in some ways, we've forgotten that because we were so focused on premiumization. I don't think they need to be at odds with each other because you can recruit and be premiumizing at the same time, right? So I think bringing that focus around core spirits growth even within our premium range is critically important, and that's some of the work that we're doing as we speak.

Clearly, whiskey and tequila will continue to be a big opportunity for us. And I'm thrilled with the early results of some of the work that we've been doing through our GVTs and CCT, et cetera, on Johnnie Walker and the execution of that because you're starting to see that in our results come through, right? Tequila clearly is a bit more of a challenge, as Deirdre highlighted from adding perspective, the category weakness, but that's North America. And I think we have a big opportunity when you think about tequila globally and not just on halo, but also Astral, right?

And then I think we have to continue thinking about RTDs and RTS in a positive way from an angle of what it can bring in terms of the consumers and the drinkers coming in through RTDs into spirits earlier, right? And that's a positive, right? And we shouldn't shy away from that. But it's also a great way to think about meeting the consumer from what they're looking for, whether it be lower ABV, calorie control and portion-controlled, being clear around how much they're consuming and what we can offer them, whether it's around functionality, et cetera. And there's an element of how we're also thinking about what does the consumer want for the future, when they're thinking about drinking occasions and how do we look at that?

So clearly, there are some shorter-term pressures as we're seeing that consumer, particularly in the U.S. in terms of continued down-trading, et cetera. But we've got to step back and look at how we're thinking about a broader range of growth opportunities as we look forward, not just for North America, but Rest of World as well.

The next question comes from Jeremy Fialko of HSBC.

I have a question on Europe. Can you talk a bit more about the implementation of these business model changes in Europe, some of the early benefits of that? And are there any elements of that, which could be replicated or models for the U.S. or not remotely in the just massive distribution differences between the 2 geographies?

Yes, great question. So listen, I think a lot of what we did as we've had a new President, Dayalan takeover in Europe, was to say, are we truly is at the core of what we want to do is be closer to converse and our customers, are we structured right way. And I think for a number of years, we were managing continent of Europe as one big market. And then we did some work, I believe, a couple of years ago, when I joined where we did go into some lower level clusters. But I think those clusters were still not necessarily getting us the impact on what we were looking for, right?

So a great example of that was Southern Europe and looking at differently in terms of Italy, France and Iberia. And we can see as having great benefits already because the team is that much closer to the customer, understanding the outlet universe better, understanding the differences in terms of how we think about occasions and consumer needs and how are we are making sure our portfolio offering is good for versus for that market, right? And I think that is an early sign of a positive that we're seeing because I think we're going to be executing very differently, being closer to the customer, right, and consumer.

To your point around whether we can take that into the U.S., I think there's always cross learnings that we can have. And I think in the U.S., the team is doing a great job of what I would say, continuously being disciplined with how we need to think about the market, right? And what can we do to differentiate ourselves. Clearly, have an advantage from our size and scale right. Clearly, we have a dedicated distribution division that helps position us for success. Are we truly leveraging that to the whole extent that we have, right? Is there a difference between what we need to do when we think about a geographic coverage versus a category coverage.

And those are things that we will continue to challenge as we think about, again, getting ourselves closer to the consumer location and are we set up for the right way to be able to do that. So I think there is that positive discontent that helps us continue to challenge us even in that market and look at what we need to be different too. And there's always going to be good cross-learning so what we can take from one market to the other.

The next question comes from Celine Pannuti of JPMorgan.

Nik, I wanted to come back to the outlook. Thank you for providing some building blocks on the H1 EBIT decline. I just wanted to think about -- when you saw that we -- like the new guidance for top line and given the little visibility, if I think about H2 has quite some country volume comparative. So first of all, you were saying before that H1 like-for-like would be slightly negative. Is this still the case? Or is it going to be a bit more than slightly negative given commentary you made on Q2? And yes, how do you think about the I mean, H2 going to be positive, given what I said about the tougher comp on volume. And maybe as well, on H1, if I understood well, will margin be declining? .

Yes. I'll give you some higher-level comments and I'm sure Deirdre will support me on some of the planning that we've done as we look at the balance between the 2. So to your first question around H1, while we have said that would be slightly -- that will be worse, just given what we're seeing with 2 big impacts. One is Chinese white spirits, and let me try and cover that first.

Clearly, the policy changes that came in has led to the sharp decline that you've seen in the baijiu category in Q1 across not just our business but all our competitors, et cetera. I think we're in a slightly better position because we also manage down the stock levels at the same time to make sure that we were preparing for what might be a tougher couple of months, if not quarters to come, right?

Now the positive there was there was a slight total change from the government Green mid autumn festival, which has resulted in us seeing some signs of better depletions, but it's early days, right? So we're continuing to plan for that to be more challenging in half 2, but we do expect Chinese New Year and depending how government policy continues to play out is how will that show through. So I think we'll be able to give you a much better addition of that with half 1 results. I think Deirdre talked about some of the moving parts when we think about the U.S. particularly with half 1 with where we were in Q1 in terms of depletes versus sales and some of the category pressures that we're seeing with tequila, right?

Remember, we had talked about the fact that half 1 was going to be more towards growth. And some of those are actually still very much intact elements of our plan, right? You've seen the acceleration in RTD, RTS. Well, we're expecting that to continue at an accelerated rate, not just in North America, but also for some of the other markets where we've seen really good success and the work that we've been doing. We talked about giving us capacity coming on stream, and we're going to be leveraging that fully, right?

Some of the Europe changes that we're doing, right, is early days, and we would expect that to step up in terms of the benefits that we can see. And then lastly, it's also linked to FIFA activation, right? We have a unique opportunity with a huge viewership of that event globally, but really being able to bring that to life in NAM and LAC with several of our brands. So I think all of those still very much stay intact. And the teams are working at pace and I'm sure the constitution of those continues to be at its best level and that's what we're doing through OND. So it takes us very well into how we're thinking about second half as well. So those are some of the things that we feel good about in terms of the building blocks, both for the top line as well as even. Deirdre, I don't know if I missed anything.

No, I couldn't said it better.

The next question is from Gen Cross of BNP Paribas.

My ones on Brazil. So quite strong performance in the quarter, double-digit growth, and it's quite in contrast to the numbers in the quarter that we've seen from other beverage and staples companies. I just wonder if you could share a bit more color on what drove the strength and particularly whether double-digit sell-in was aligned with your estimate of sell-out in Brazil?

We had strong performance in Brazil in Johnnie Walker and RTD in the period. Those were the 2 strongest drivers of performance in the period. So I think we are feeling good about the overall performance. Of course, there has been some of the issues in the media about alcohol more broadly. We are -- that's something that we're watching carefully in terms of the total category dynamic, although we did get good performance in our brands in the period. .

Absolutely. And I think the only other thing I would add to what Deirdre said is if you do look at it from a weather implication perspective and where some of maybe their peer companies were impacted, we didn't see as much of that, right? And clearly, we will help with the progress, as Deirdre called out on RTDs, where the team has been doing a phenomenal job under the leadership of Paulina. So there is a space that we'll continue to watch in terms of that whole issue with what we've seen in terms of the spirits piece.

But I think this is where, again, longer term, that's a benefit from an angle of known and trusted brands and what people would want to consume, right? So we've got to stay focused again on what does that mean for the longer term? And how does that help and benefit us in terms of our position. And in RTD, this a great way again to make sure people get trust because they're opening up a can they know what they're drinking and they know exactly what's in it, right? And I think the team that -- the work that the team has been doing sets us up well from that angle as well.

The next question is from Edward Mundy of Jefferies.

And welcome back as well Deirdre. Deirdre, a question for you, I think. I know you've been back in Diageo for a couple of months, but I think you started in the industry, if you don't mind me saying back in 1992, which was a really tough time, both for beverage, alcohol and spirits haven't had a really bad sort of 1980s period. So I think you started in the industry, just as spirits started to get its mojo back, and then we saw a 25-year super cycle with a couple of great big years at the end of that through COVID. My question is really having been through a couple of cycles both for Diageo and the industry, what do you think is going to be the catalyst to get this industry back into sustainable levels of growth?

I will let Deirdre answer that. But I would say to you that probably you don't really need to call out when she entered the industry.

That was a long time ago. Absolutely right. I have seen the cycles, including a broad premiumization cycle and kind of situation that we had in 2009 with the economic crisis, a big move into emerging markets. And then, of course, a big growth for a long period in the U.S. I think we are seeing now -- and Nick has spoken about this before, a bit of a shifting landscape across the industry. So we have 2 things happening. One is the same issue that we had before. We are on the back of a super cycle, which has been exacerbated by weak economic environment, in particular, in some of our biggest markets in the U.S., in particular.

So it's happening from a consumer perspective in the U.S. and its impact on this category is a bit unprecedented. We haven't seen periods where I forget, it was a very long tune where spirits volume wasn't in growth, and that's happening now for spirits. So we're seeing shifts in the way and where consumers are consuming our products. and that is a period now where everyone in the industry is adjusting to that. We think we're very well placed to win coming out of that. We participate, we can see. We didn't talk much about it today, but Guinness in the U.S. is up 9%. So we have Guinness and Guinness Zero and RTDs. And what -- I think what we're seeing is a number of the players in the industry really thinking through where are their strengths, where are they in the categories and formats and geographies occasions that they believe they're best placed to win.

And given the breadth of our portfolio, and the strength of our brands, we think we're in a really good position as these industry changes evolve and consumer behaviors evolve to win. So I do think what's happening now is just -- it's largely economic, and I know people have been saying that and I believe that. If you just look at the changes that we're seeing in terms of trade down, both in formats and price points. And then there were some changes in the way people experience the products. And we lived through that before though, of course. And I think we're going to actually work through that and start to see the industry take a turn as the economies globally in particular, in the U.S. start to improve.

The next question comes from Laurence Whyatt of Barclays.

Deirdre, you just mentioned that Guinness is growing at around 9% in the U.S. And I was wondering if you could just give us a bit more color on Guinness. Because it looks like it has accelerated in Europe as well. I think, high single digit in Europe. I think it delivered about a double digit in the full year last year, maybe around mid-single in Ireland. But just wondering if that is an acceleration at the moment, if it is, what do you think is driving that, if we see any impact from the Guinness series from Netflix? And as we go into the end of the year, looking for the new house in London being completed. And just wondering if you think you've got enough capacity to not have any repeats of the stock out that we saw last year.

Well, I'll make a few comments since I just referenced it and then I'm sure Nik will have more color on it. Look, we're very excited about the performance of this brand. And this is on the back of a deliberate effort by us in terms of thinking about how we wanted that brand to show up in the market, how we wanted to invest behind it and in some degree, meeting the consumer where they are, which is -- and evidence of that is the -- and I mentioned shifts in consumer behavior, the significant -- in Guinness 0.0. And we're finding that the combination of Guinness 0.0 and of course, Guinness Draught in many places, is great -- is getting a combination for consumers so that in terms of -- and evening out, they, of course, can have Guinness 0.0 and they can have an Draught Guinness and they can kind of manage their consumption if that's what -- if they're wanting to moderate. .

And -- but it's a multipronged effort over many years. So if you look at the CAGR, this hasn't just happened overnight. The CAGR on Guinness over the last 3 years and over the last 5 years has been very high double digits or very high single digit. And we have continued to grow in a number of markets in Ireland and GB and in the U.S. specifically, but in other markets as well. And we have been putting on new capacity. And so I think we will see that strength continue to grow. And of course, we are working to ensure that we have sufficient product to meet the demands of the consumer as that happens. With respect to the House of Guinness, I mean it's early days. I did hear yesterday it was renewed for a second season. So I guess the consumers are liking the show. We were not associated with that program at all. And so we have -- I don't think that's what's driving the performance of our brand.

Of course, it may drive some levels of awareness, but we were seeing and continue to see very small performance with the Guinness brand. I don't know, Nik, if you want to share...

Yes. Just a few other things I would just add to the contract. So in fact, we actually spent some good time yesterday with our Board as we looked about growth plans with one capacity that's just coming on stream, as I referenced to earlier in little cone that we'll be able to leverage not just into half 2 but beyond as well. But we also look at plans '28, '29 onwards, which clearly are focused around what can we do in both Europe, GB in particular, and I'll come back and talk about that, but also the U.S. So very focused around that because I think we continue to have a great brand that can still be very much scaled, but also premium, right, in terms of the offering, that's where the consumer is going. In particular, when you look at GB and 0.0 that data referenced to, there's a lot of talkability around that, given the fact that people are enjoying that, whether it's zebra striping, whether it's semi-skilled options of what they're doing, it's causing a lot of excitement around the brand.

The team has done a phenomenal job steeping this in culture. And so we're expanding the user base quite significantly from twofold angle, right? One, it was really seen much more as a winter drink and now it's becoming an all-year round drink, right? And that's been helped by what we're calling a Lovely Day for a Guinness campaign, right? And that's been really strong. It's also attracting the younger demographic and more female into the category as well, which is all really positive when we think about the growth opportunities looking forward.

To your question on the U.S., in particular, clearly, it's been outperforming there, right. We have share gains in 50 of the past 52 weeks, right? And so that's a real positive, and we see a big opportunity for further growth there with 0.0 as well, right? So I think overall, as Deirdre said, we continue to see the same trajectory of growth continuing for the next 3 to 5 years. And we're thinking about that in a balanced way in terms of how we want to think about capacity build, CapEx and expansion plans, but continue to be very excited about that.

Our final question comes from Chris Pitcher of Rothschild & Co Redburn.

Deirdre, welcome back as well. Can I ask a slightly bit strategic question. Two of your biggest profit pools, the U.S. and China have deteriorated quite materially. And it hasn't escaped investors' attention that you both have the title interim front of your job title. Can you give us reassurance that yourselves and the Board feel that the big strategic decisions don't need to be made down in those markets. Certainly, from the commentary, it sounds like you're going to see how Christmas plays out in the U.S. and how Chinese New Year plays out for Shui Jing Fang before you do anything dramatic. I just wanted to feel there isn't this tension between urgent action required and executive decisions. .

I think for both of us, but also it's great to have Deirdre back, and you're actually right, we both have the interim title, but I don't think that in any way is slowing us down and all the boards kind of mandate to us to continue at pace, right? We've just finished up a couple of days of really good discussions with the Board, which was focused around how we're thinking about the future. So we wouldn't be doing that if we both were sitting here with interim titles, and they were just kind of waiting for something to change. So I don't see that as an issue at all. And I think hopefully, you're getting a sense that while we're talking about the things that are impacting us in the short term, we are still very much thinking about the longer term of the business, right?

And I called out some of those things with the sharpening of the strategy work that we're doing as an exec with our MDs is really around how we're going to actually meet the consumer of the future and think about occasions for which we have a more relevant portfolio that is leveraging all parts of where we have already a right to win, but have not been playing it effectively. And what are the areas that we need to think about differently as Deirdre highlighted, because the consumers are potentially drinking differently, where they're drinking, what they're drinking, how they're thinking and what they want from a beverage company as opposed to just a spirits company is how we need to be thinking about our programs.

So rest assured, I can say to you, neither one of us is sitting back nor is the rest of the organization in any way. So please stay confident on that. And Deirdre, I don't know if you want to add.

I would just add one thing. I just want to be clear. When I said we were, of course, waiting to see how the consumer would behave. I'm not waiting to see how they behave before we decide how to manage our brands. I said that in the context of, of course, the consumer takeoff in the quarter will impact our overall performance. So we -- I mean, I've known you a long time, Chris. I certainly -- I'm not going to sit and wait for something to happen regardless of what my job title is. We are running this business for the long term for the strength of the consumer fit of our shareholders into the medium and long term and nothing about our job title changes that as well.

We have no further questions. So I'd like to hand the call back over to Nick for closing remarks.

Great. Well, thank you, everyone, for joining us today. It's great that Deirdre is back with us, and you all gave her a warm welcome. So thank you. I'm looking forward to sharing more on our Accelerate program when we report results in February. As highlighted today, I think we've really made some good progress in the first quarter, but there's a lot more for us to do, and we're not shying away from that, and we need to go faster and we just talked about that, right? So we are acting with pace to sharpen our strategy to drive growth, better results. And as Deirdre just said, ultimately improve shareholder returns. We're very conscious of that. And as always, any further queries, please just follow up with Sonya and the IR team, and have a great day. Thank you all for joining. .

Thanks all.

This now concludes today's call. Thank you for your attendance. You can disconnect the lines.

Good afternoon, everyone, and thank you very much again for joining us for this afternoon session. I'm very happy to have Nik Jhangiani here from Diageo joining us.

So Nik, thank you for coming to the conference this year.

Cheers.

Yes. We've got these lovely Ritual drinks in front of us. So...

Yes. We served them all day yesterday, I think, starting at 8:10, and that's the beauty of a nonalcoholic product. There's no real cocktail hour that you need to wait for to start drinking them. So if you haven't tried them, please go out and buy some today.

Okay. So you've been at the company for about a year now. So how has that measured up to your expectations?

How has it measured up to my expectations? I mean, I think, listen, I joined Diageo for what I have truly seen, which is amazing iconic brands, amazing marketing and brand building capabilities, I mean, I think, unparalleled scale and reach both from an angle of the size of the markets and the categories in which we play, but also from an angle of just our geographic diversity of where it is. And all of that's been incredible. And that's really been supported by amazingly passionate people who truly love the business, love the brands, love our consumers.

But on the flip side, having come in from the Coke system and spent more of my time on the bottling side of the business, it's also incredible to see where we don't necessarily have, in my mind, the same degree of love and passion, and I'd link it to our customers and our commercial execution capabilities. And I think that's a big opportunity when I look at Diageo. I also look at it from an angle that says it's a really interesting time to come into a company where clearly there is a lot of noise. I didn't realize that I'd spend my whole first year in every kind of conversation, be it with investors and with friends and with family, around structural versus cyclical.

And Laurence and I were joking, I probably wake up in the middle of the night saying, I don't know. But it's something that I just never expected to have dominate the conversation so much. But it is interesting when you then start getting into it that says there are clearly trends and indications of stuff that's been around for a number of years. So potentially, is this cycle taking us longer for a variety of different reasons that, I believe, and we can talk about those potentially. But is that also some accelerated changes that have been around that might be coming more at pace? And do we need to be thinking about our business and our business model and portfolio with a slightly different lens without losing what is the beauty of what we have?

And I think that's the exciting part of coming in and being here a year and, in some ways, still being in that luxurious position of being that what I call an insider-outsider, where you've been inside long enough to have a view in a sense, but you're still an outsider where you're continuing to view and challenge because you haven't been there long enough that you've gotten kind of steeped into that culture or that environment or that category or that business, where you can step away and say something different. So that's where I am.

We'll certainly get to a number of those topics, structural, cyclical and portfolio and the like.

I thought I addressed it right there.

We're going to go a bit deeper than that, I think.

Okay.

But in terms of -- you've come up with -- new cost saving target has gone up from $500 million to $625 million recently. Where are you finding these cost savings? Where does the additional opportunity come from? And importantly, will it cost you anything to deliver them?

Yes. There's no such thing as a free lunch, so yes, it will cost us, but we'll come back and talk about that. So I think Diageo has been really good in terms of some of the work that they've been doing in the recent years around supply agility. And I think there continues to be opportunities as we look at our supply chain all the way from manufacturing through to logistics and distribution and how can we actually look and eke out dollars that are not necessarily driving growth and/or efficiency for us.

So I think that continues, but truly looking at it with a lens of what is actually dollars that are delivered to the bottom line as opposed to a cost avoidance element, which is important for us to track in terms of how we're performing relative to how the market is doing, but that's not necessarily real savings that come through. So I think for me, that's just a bit of a shift in terms of how we're looking at it and how we're communicating to the market around those opportunities.

The second piece really is when you look at Diageo, one of the strengths that they've had which you don't want to lose is you've got this real entrepreneurial way of working. So each of the markets in a way has had a lot more freedom to be able to go out and do what they need to do, which is great because you want them to be close to the consumer and the customer, and you don't want to lose that. But with that freedom also means there's almost been an opportunity for them to opt in, opt out and/or also, in my mind, I joke and I say, it's not just a menu that we offer. And they kind of say, well, I'll pick this and I'll pick that. It's actually they also have the choice of going off menu.

Well, what does that mean? Well, clearly, when I talked about one of the strengths and the scale that we have, why aren't we creating those capabilities at scale but still being able to have that flexibility at a local level? And that comes back to being clear around some of the decision and what gets done where, and what happens at a market level, what happens at a region level, what happens at a corporate or group level or a center of excellence or capability development. And that can unlock a lot of wasted resources and dollars because you're creating a lot that might just be on the margin different but not necessarily giving something that's so substantially strategically different. So I think that's the second bucket of work that we're looking at that will drive obviously some OpEx savings.

And then the third piece really is around the whole bucket of our trade investment and our A&P dollars, which have both grown at a very high rate. And in some ways, they've grown at a much higher rate than our NSV growth. And we've allowed that to continue happening because it was almost this vicious cycle around, well, I need to continue investing there to get the growth. And if I'm not getting the growth, I'll put more money in there, and I hope that the growth will come. And I'm not saying that we want to look at that and in any way cut what is the brand building element of it.

Because if I look at those numbers, you've got about $3 billion of addressable spend in trade investment. And if I look at the $3.6 billion that we spend in A&P dollars, only about 40% of that today, rough numbers, is actually spent on media scale and reach. Another 40% was being spent on commercial A&P, which is also linked to trade investment. And then we've got this big bucket of what was nonworking, which we've been working very hard at bringing down, and we can talk a little bit about that.

So I think it's really feeding more on the media scale reach piece through more digitization and digital media that we can leverage where we can track better returns and move quicker in terms of how we allocate those dollars to where the growth is and actually pull out inefficiency in these other buckets to be able to reinvest. So that's what it's all about.

And I think as we laid out the target of around $500 million, as we got deeper into some of the work and actually, in some ways, it was great because we started working with each of the markets around that, and they were able to think about unlocking more opportunity and, hence, the ability to take that number up. In terms of cost, I would say to you, circa $500 million over that 3 years to deliver that savings.

But remember, that would be an exceptional cost in our P&L, but that's very much included in my free cash flow guidance because cash is cash. I always joke, there's no exceptional cash and I can kind of pull that out. It's cash. So we will deliver the $3 billion, which is net of any of the cash element of that $500 million.

When we think about cost savings, I guess, as analysts, we, of course, like that and it's going to grow the margin and all the rest of it. But whenever I talk to people in the industry, there's a sense that the drinks world, the spirits world is a very relationship driven world. So how can you be sure -- like you mentioned in terms of the marketing spend, how can you be sure that when you take the cost out of the business, you still maintain that person-to-person relationships that are so important to the industry?

Yes. So it's a really great question because I actually think in the last round of the productivity savings that Diageo did back in '17 through '19, one of the areas that they cut the most was on the commercial muscle, okay? And if you look at what we've positioned and talked about is we do expect to see roughly half of those savings being reinvested. And I would actually tell you, that's around commercial excellence and commercial execution.

Now is it linked to more business development and feet on the street? Is it related to more tools that allow us to work with our partners to effectively drive better margin-enhancing growth, whether it's around the center of expertise for our GM capabilities where we can drive data and insights? That's where I see a lot of that going. So in fact, that's where I think we need to rebuild and actually gain back that strength because you're absolutely right. It is very relationship oriented. And that relationship should be that point of contact that's helping that outlet grow their business.

But it's also that relationship that has a better ability to understand what is happening at the consumer trend level through that outlook for the occasion and/or experience that the person who's coming into that outlet is there for. Because you don't expect each of them to build out their own shopper marketing or consumer kind of choice framework. That's what we should be able to bring to them. But that has to then marry up with how we actually brand build both in terms of digital or traditional media or scale and reach through influencers, et cetera, as well as how does it come to life at the point of sale.

Because I always say brand love is great. But if it's not translating into a purchase of my product, well, how good is brand love? So that's where we need to rebuild some of that muscle.

And I guess similarly on marketing spend, when I talked to your predecessors, there was a general sense that marketing was looked as you just want to get the return on the marketing spend you put in. There's no limit to how much was spent on marketing. There was no maximum and actually marketing spend has been increasing over the past sort of few years, well, around a decade.

How are you thinking about the sort of quantum of marketing spend that the business is going to be putting in? Do you have a set limit? Or are you looking at things like the returns that you're taking from that marketing?

Yes. I mean, I think, again, you have to step back and look at it. Are you looking at just the marketing scale and reach? Or are you looking at your commercial A&P dollars and what it's actually delivering at that point of sale? And you've got to look at it holistically. So I think the first thing we need to be focused in on is how well are we looking at it end-to-end and how well are we looking at it from the brand building all the way to the point of sale. And I think that's where we've not been as strong.

I think where we have to continue driving that cost down is on wasted commercial A&P that is not necessarily effectively going back towards shopper, consumer and/or customer if we want them to be our preferred partner of choice. And it's not just I add more discounts because I want to push more volume because I want to get it out there, but there's nothing really that drives to help activate that at the point of sale.

So I don't necessarily look at it as we need a prescribed number of dollars. We need to look at it firstly in terms of growth. We also need to look at it in terms of markets because not all markets are created equal. And what are the markets in which we see breakout growth or future growth potential versus what our value contributors today versus what our growth engines today, and how do we allocate resources within market, within portfolio, within channel end-to-end in a more effective way?

And I joke about the fact that we've got a number of brands. It's kind of like having a lot of children. But I don't each love all my children in the exact same way. Might sound terrible to parents, I'm a parent. But yes, but that's why I only had two so I could love them equally. But when you have the 100-plus, well, it's difficult to love them all equally. So we've got to go where the performance is and where the growth is.

I think one of the changes that we've heard from you since you joined a year ago was a focus much more on the dollar margin rather than the percent margin focus. What's this change all about? I wonder if you could sort of run us through what your thinking is there.

Yes. I think what I saw as I came, and I can give you a couple of examples of that, which is there was such an obsession with gross margin percentage that we were actually driving some of the wrong behaviors in the business, all right? So we were getting out of categories or businesses because the margin percentage was low. And I'm not talking about RTD, so I'll come back and talk about that in a moment.

I'm also talking about within, let's say, whiskey, because we were so focused on premiumization or because we were so focused on margin percentage, and that meant how much more can I premiumize, than I was forgetting or not focusing on what might be primaries or lower-aged liquid. And in some instances, I was actually selling off those brands where, if I came from the last place, I would kill and chop my left arm and leg off to get a business that had that type of gross margin. I'm talking about 65% plus as opposed to an arbitrary 70% being a measure. So it was leading us to the wrong decisions that we weren't going after the growth.

I'll give you another great example of that. We have a new GM MD who's gone into Mexico, and he was in GB. And we had spent a lot of time together in the U.K. market, just home market, and it was easy to go out and stuff for that. And we were chatting a lot around this margin percentage piece. And he got to Mexico. And he said, I've come here and I want to redo my whole business plan. And I said, tell me more. And he said, well, I've come here and we're just about to launch Don Julio Ceniza, but that sells at MXN 900 a bottle. But we are completely ignoring doing Don Julio Blanco because it sells at MXN 600 market and the margin is going to be lower.

The size of the Don Julio Blanco market is probably 10x as large as the Ceniza market. And more importantly, what have you lost by not playing in that profit pool? And opportunity to build the Diageo brand, Don Julio, right a Blanco, which naturally then leads to brand affinity. And if you've got a brand ladder, you can move people up, like we do with Johnnie Walker, for instance. That was a flawed choice because it was a margin percentage led kind of decision to be able to do that.

So that's why I kind of am turning that metric around because there's profit pools and dollar pools that we're not going after where the absolute growth is great and we have a right to win. And that's why I think, in some ways, that's very liberating for the organization who were told, well, you can't do it if the margin is going to come down percentage. Even though if we're focused on operating profit dollars and an outcome, if I'm growing my operating profit dollars at a faster rate than growing my top line, is clearly going to mean the commitment to leverage, which means an expansion of my operating profit margin and, over time, that will also allow me to get my dollars.

And if I'm focused on those elements of cost in the right way, does it really matter what my gross profit margin is, whether it's 69% or 70%, as long as my operating profit and what cash I take to the bank is growing? That's not to say margin percentage isn't important, but it's an outcome of you doing your business right.

No, that's very helpful. The examples are very helpful as well. Just want to go back to something you said at the beginning around portfolio. Because at the beginning of this year, you talked about substantial disposals and, of course, this have caused a lot of speculation in the world.

Intentionally.

Sure. But how are you evaluating the various parts of the business that could be thought of in this way in terms of their relative importance? Are there any criteria that you're putting on any brands or businesses that could be potentially looked at as disposals?

Yes. I mean, I think we've looked at it from the first lens that says if we're growing, and the largest part of our business is actually growing in the spirits world, okay? And yes, it's international spirits but it's not only about premiumization. Are there businesses that I have today that don't offer me synergies and/or growth opportunities for what is the largest part of my business?

And am I actually driving that business which actually could belong in the hands of someone else, and particularly, if it's a scarce asset, it might be something that a buyer universe would be willing to pay very attractive valuations for, which also then means I have the focus on what I'm doing? So I really see those are noncore, nonstrategic types of businesses. And disposing of those also allows me to focus where I'm growing but, more importantly, gives me that flexibility also on my balance sheet because I'm clearly not happy with where we're sitting from a leverage perspective.

But that's an outcome, again, as opposed to I'm doing it because I want to get to a leverage target because my leverage target should really be achieved by me doing the right things organically and growing my profits and growing my cash flows to allow me to delever. But this will support it, but it's being led by a strategic review. And I think as we continue to do the work around our portfolio being led very much by the consumer, the occasion, the experience and the choice that they're looking for, do we have the right portfolio going forward?

I think we largely do, but I think there's work that we need to continue doing. And are there areas that indicate, well, maybe this isn't a part of our portfolio going forward and/or do we have gaps that we need to think about? And that gives me more flexibility if there's either M&A and/or partnership opportunities that today I'm a little more strapped on given where my leverage is. Now if it's the right opportunity, I'm still going to go ahead and do that. But I'd clearly like to have a lot more flexibility.

So that's the way we've thought about it. And I think it's truly where we feel we can maximize value for Diageo and our shareholders but also allow us to get more focused, and that's what we're doing.

Okay. Well, I do want to talk about the structural/cyclical question as it's one that does dominate the....

At least you waited until about the sixth question.

Well, yes, we've got a little bit through. But I guess you've changed the tune, I suppose, from a lot of your peers within the industry talking about the effects of moderation on the industry. I think you've said it's largely cyclical but there potentially are some elements of moderation. I guess we don't take a hugely different view. But some of these moderation trends we have seen for, say, 15-odd years. I think some of our data suggest that anyway.

And what we've seen in terms of alcohol consumption is a very dramatic change over the past 3 years, really since the middle of the pandemic to now. Do you think there's been any real change in moderation over that period that could explain that really quite dramatic change? Or are you describing a more continuous -- well, a continuation of the moderation changes that we've seen over that sort of, say, 15 years?

Yes. So listen, the big debate has been out there, which then goes down to, well, so if it is not cyclical and it's more structural, what are those structural issues. And what are the ones we all talk about, well, or I get asked about? Well, cannabis, GLPs, Gen Z is drinking less and then, to your point, a continuation of moderation.

Now let's come back to the first three. But when you think about moderation, it's interesting because are people moderating because I'm more focused on health and wellness? Or am I more focused on how much I'm consuming and how I'm going to wake up the next morning? Are they also moderating because they just don't have enough money to spend and so they're moderating? That's still moderating. Now is that a trend that's a continued one or is that a trend that will reverse because that's linked to more of the cyclical or the macroeconomic issue? And is that probably a part of what's exacerbating what looks like a longer trend and a more dramatic falloff?

Because what ended up happening, at the end of the day, people were buying so much through COVID and at premiumized because they had a lot more money. They were buying better stuff and I wasn't going out and I wasn't traveling and all that kind of stuff. And then all the post-COVID issues hit from a supply chain issue, from a cost issue, et cetera. And what did everybody do? They started taking their prices up. And in some ways, I would almost step back and say, has the discipline been in place in the industry, and I would actually say led by Diageo being the leader, around taking pricing almost each year?

And I don't mean just a blanket I'm going to go out and take a 1% pricing each year and that's what's going to solve my problems. But it's actually back to this RGM capability and where is there elasticities or relative inelasticities for not a brand, but for an occasion or an experience that a consumer is looking for in a particular type of outlet? And how well are you taking advantage of that as your price and mix opportunities? So you get a lot more surgical around how you think about that. But let's come back to that because that's a capability that we need to build.

But going back to this then, it says there was such a large inflation element and people were already dealing with the fact that they had stock. Well, clearly things slowed down. And then when you're actually going to think about replacing that stock, well, you're thinking twice because you don't want to spend that money or you'll wait until you're literally down to the last drink before you go out and replace that. But you also start thinking about your cash outlay. So moderation just is coming through from a macroeconomic pressure perspective.

But the other elements are probably different. And there's probably one that's the one that I think we need to continue to understand more, which is what is the impact of GLP-1s on consumption. Now clearly there's been impacts on some categories. To date, we don't necessarily see anything of a significant impact on TBA other than potentially, within TBA, how are people consuming, but it's one that we need to think about. And that's the one piece that's different.

Because cannabis has been around for a while. And in fact, when we look at all the trends of what we're seeing and the research that we have across the states where it's been legalized and keeping aside some of these THC and hemp-derived beverages, actually, the majority of the consumption is co-consumption. So it's not like people are saying, I'm only smoking or I'm vaping or I'm chewing and I'm not drinking as well. So there's a lot of co-consumption going on. So I don't think that's a big issue.

I think this whole thing about Gen Z drinking less, I think, is an over-exaggerated piece because that's probably the cohort that is feeling the most pressure on their wallet. And that's not something that suddenly -- a structural change doesn't happen overnight. It's years. So I do think moderation is a theme. But it's not suddenly that moderation was pacing, and I'm making up a number, 1%, suddenly it's is gone to 10%. Now is that 1% going to be 2%? Or is it going to be 1.5%? Or is it going to be 3%? We don't know that.

But there is a real world of a continuation of moderation and perhaps maybe at a slightly higher pace. We don't know. Because we'll only know that once the economic elements kind of settle and people get back to more normality. But even when you look at the Gen Z cohort, we're talking about a group of people, some of whom have not even reached legal drinking age, some of who are in the earlier part of their legal drinking age piece and they're probably the most cash strapped. So actually, when people say it's all about health and wellness and the younger generations, all about health and wellness, I'll call a bit bulls*** on that.

There probably is, don't get me wrong. But it's not every one of those coming in is like suddenly become the healthiest person overnight. And that's all that they're focused in on. And actually, when you look at it, as they get into the large -- the higher age cohorts, there's probably a different level of type of socializing that happens. And then they'll probably get back to more normal levels.

But I almost step back in a way and I say, well, if there is a theme here, and even if it's slightly higher or even if it's at the same rate, is there something that we can tap into in terms of what we can offer from an angle of moderation? And we've been doing some research, and it's early days. But I guarantee you if we went around this room with over 100 people and we asked what moderation means, we have at least 15 different answers of what moderation means to that individual. Because moderation doesn't mean the same thing to me as it probably does to you.

And so the research, what we've been doing says, okay, in a world of moderation, well, what are you consuming? And I joke and I say, well, there's one end of the spectrum of people who say, well, I'm not substituting with anything. Well, those are the boring lot that none of you want to go out and party with. So at the end of the day, someone's going to go out and I'm just not drinking something. Well, kind of boring. So we'll keep them aside for a moment and we'll see how we can convert them over time. But we can only convert them if we offer them a great alternative where they feel that they might be willing to drink something.

But there are other ones who are drinking soft drinks, adult soft drinks, more premium soft drinks, functional beverages, hot beverages. So those are -- are there pools or opportunities there that we might be able to tap into? But there's also ones who are saying I'm looking for lower ABV products. I'm looking for RTDs and convenient formats because I'm drinking differently. There's ones who are saying, well, when I do drink, because I'm moderating, I drink premium, not more. So I actually will have my one drink, but I really go for that 1942 as opposed to two Blancos type of thing. There's ones who are zebra striping. I'll have one regular and have -- so everybody is doing something different.

Those are areas we can tap into more. But also I would say, that broader other occasion consumption that we don't play in today, is there something that we can do there? And that's how I want us to think about an opportunity set that in potentially a world of moderation, could we tap into that? And if all of this is all cyclical, well, I've still got my business that I want to continue growing, but not just on one vector, which is premiumization.

Well, it sounds like we're going to be in violent agreement around the structural versus cyclical arguments. But one of the other areas we do think about a lot and get a lot of questions on is, I think it's fair to say that Diageo is generally taking share within the U.S. market over the past few years. But that recent growth has largely come from -- it's not even just two brands. There's a couple of SKUs within the portfolio.

You've got Don Julio Reposado, which has been doing brilliantly. Crown Royal Blackberry, a recent innovation. And then you might also argue Guinness has been very helpful as well. But outside of those successes, there is a lot of the portfolio that has been struggling and is feeling the impact of the difficult industry. So how can you breathe life back into all of these brands, not just the few that are being very successful?

Yes. No, you're absolutely right. Listen, firstly, I think we should be proud of the growth that we've had and the market share gains that we've had because that's where the growth has been and we've been winning there. So I don't want to take away from that. But absolutely, why do I have a portfolio or why do I have 100 children when only 2 of my children actually smart and doing well and the other 98 are dunces? Well, that's not great.

And so either it comes back to, do I have the right portfolio? But if I do have the right portfolio that I'm thinking about from a consumer and an occasion-led perspective that is relevant there, why am I not utilizing that as effectively? So I think it does come back to stepping back and looking at, again, consumer occasion, experience led, what is relevant. And are we focused around execution then of that set of brands and/or category or sub-offerings within that for that particular channel and occasion? And I think that's where we need to get better.

And I think part of it has also come because of this element back to margin percentage and premiumization was the one vector. And that's great. But I've also got a great set of other brands in the premium plus and the mainstream core that actually have a role to play for what is actually a great consumer base that I might not be addressing. And I think we just need to look at it differently. So I think there's an opportunity as we look forward to be -- but that doesn't mean I do everything everywhere. So I've got to be more choiceful. And I think the U.S. team has clearly been focused around tequila but also building out a lot of expertise in whiskey because those are our two biggest brands and those are probably the two biggest growing opportunities. But that's not to say we won't do stuff on some of the others.

Ketel One is actually a great example of a brand where we've actually maintained, if not slightly gained share. And it's incredible because vodka is an interesting category and you've seen one of our competitors do extremely well over there. But we've done a great job in terms of bartender advocacy around Ketel One. And I think another thing that we're doing with Ketel One that's great is with some of these ready-to-serve cocktails and the Ketel One Espresso Martini that's being sold out, those are elements that build the brand as well. Bulleit is another example of that. And so we've got to continue looking at where these pockets of growth are too and how do we accelerate some of that too. So that's what we're focused in on, and that's what we'll be doing going forward.

And then I appreciate we've only got a couple of minutes left. But are you seeing -- one of the themes at this conference has been what's happening in the U.S. consumer. Are you seeing any signs of an improvement in the U.S. consumer as we sit here today?

I can't say we are. It's something that I would say we continue to track even from an angle of how is sentiment looking as opposed to necessarily buying because one links to the other. I think there's still a large period of continued flux and uncertainty. I don't think the tariff situation and everything that's going on there helps. I don't think, obviously, outside of the signaling of what might be happening from a rate cut perspective, it's really happened and how long does that actually take to translate into the spend power and/or sentiment that starts improving.

So for '26, for our fiscal, we haven't necessarily planned for an improving consumer environment, but nor we planned for a further deterioration in that environment either. And again, we remain very much focused on what we can manage and control for now, but also, at the same time, building out a more robust and inclusive growth algorithm that we can start leveraging sooner than later but, at the same time, do what we can manage and control.

Okay. Well, I feel we've only scratched the surface of what we could talk about. But you've been in meetings the last few days. And are there any questions you think we, as analysts, or the investment community should be asking you. What part of Diageo do you not talk about, do you want to talk about? Where should the focus be?

Well, I think, obviously, if you ask me, I think it's been an overfocus on this whole structural versus cyclical. And I do believe that the category is still very robust and very attractive. And I think there are growth opportunities in this that are just not being appreciated right now because of the uncertainty around this whole debate, is there truly much more structural versus the cyclical element. So I think that's probably an area that gets overindexed on.

I think the other interesting piece for me is really this whole debate out there around, in some ways and links into what could be structural if people bought into that, this whole no safe level type of piece that seems to have just garnered and gained so much momentum when clearly the science doesn't really support it. But you don't start rationalizing and reasoning with people from a scientific perspective only because outside of the scientific element, there's a social and a structural element of enjoyment and being together that's equally important. And we were talking earlier, at the end of the day, when that happens, it typically revolves around drink and food and stuff like that.

So I think the category is still very robust and has been overshone and overtaken by some of this. And as an industry, I think we can do a lot more to be able to manage that dialogue in the public domain space. Not so much with the regulators because I think we work with them. It's about what is that public opinion piece.

Nik, I could ask you questions all afternoon, but I really appreciate you coming and joining us at the Barclays Conference.

Thank you.

Thank you very much.

Appreciate it.