DEO

Hello, and welcome everyone to the Diageo plc Fiscal 2026 Q3 trading statement. My name is Lucy, and I'll be coordinating the call today. 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 who'd like to ask a question, please use the dial-in details included in today's press release.

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.

Sonya, thank you very much indeed. Good morning, everybody, and thank you for joining us today. I'm joining the call from the U.S. Sonya and Nik are in the office in London. Before I pass over to Nik to take us through the trading update, thought I'd 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.

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. With that, Nik, I'm gonna hand over to you for the Q3 trading update.

Great. Thanks, Dave, good morning, everyone. Thank you all for joining us today. I'll walk through our results for fiscal quarter 3 of 2026. Dave and I will answer any questions you might have. Let me start with a quick overview of the top line trends. In the quarter, organic net sales were up 0.3%, driven by 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 US 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 2026. 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 2026 is unchanged from what we shared in February at the half-year results. Moving to reported net sales.

This was up 2.3% with a notable impact from a positive hyperinflation adjustment, which was partially offset by the negative impact of disposals including Guinness Nigeria and 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 US spirits and Africa. 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 US spirits down 15.4%, weaker than depletions decline by circa 5%.

As Dave communicated in our press release, actions are already underway to address this. Although NAM 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 NAM price mix was negative, largely due to adverse US spirits mix. US 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 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 buy-in 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 Mainstay in South Africa. Moving to our outlook for 2026, we reiterated our FY 2026 guidance shared with H1 results, namely for organic net sales down 2%-3% and for 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/4HANA ERP system at the start of fiscal 2027. The other financial guidance for fiscal 2026, which is also unchanged, can be found in the appendix of the slides. As Dave said in today's release, we're 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 2026 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?

Thank you. The first question today comes from Simon Hales of Citi. Your line is now open. Please go ahead.

Thank you. Morning, Sonya, Dave, and Nik. 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 firmer footing, especially perhaps in the U.S. I mean, you say in the statement, Dave, that you've 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? Is there any early data on the consumer response to those moves that you can share with us at all, please?

Sure. I mean, I think if you look at 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 had already initiated some of that work in Florida with positive results. 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. 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 Lewis, I don't know if you wanna add anything onto 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's 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.

Brilliant. Thank you.

Thank you. The next question comes from Celine Pannuti of J.P. Morgan. Your line is now open. Please go ahead.

Thank you. Good morning. My question is on the outlook, obviously Q3 has come with better than expected results, but as well with some moving parts, including Easter, you mentioned that, Nik, FIFA. I don't know whether there were some selling as well in Middle East. Is it possible to have an aggregate view of or value of what the impact has been on Q3 and what you are backing for Q4 when you decided to reiterate the outlook? Maybe my question is underlying performance. It seems that the U.S., you are still seeing challenging market.

Outside of the U.S., do you think that the overall momentum in the market has been better, and, you know, whether that as well could have a bearing on Q4 performance? Thank you.

Yeah. Celine, listen, obviously a lot of moving parts, so I'm not gonna quantify, you know, what that phasing impact is. 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, where the underlying fundamentals outside of the lapping issues and all the phasing issues continue to be strong. I 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, you know, what we're trying to do with net sales. 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. Overall, I think we're continuing to see good momentum, as I said, in the rest of the world.

Chinese white spirits, you know, you will see that normalization just given what we'll be lapping as we look forward, and U.S. we'll continue to talk about, you know, a more competitive strategy, when we update you in August.

Thank you.

Thank you. The next question comes from Mitch Collett of Deutsche Bank. Your line is now open. Please go ahead.

Thanks. Good morning. 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? Thank you.

Yeah, Mitch. I mean, 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. You're seeing that in terms of what 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 a spirits, you know, producer is really supporting this, and we wanna make sure that we've got the right plans in place across North America and LAC, but also rest of world because, you know, 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 aired during this period of time, and with the time zone differences. Clearly, you know, I think that would be another element that we would be tracking that could have an impact on, you know, the performance and on the top line.

From a profit perspective, I think, you know, 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 NAM activations on FIFA, that will clearly have an impact as well. I think more importantly, you know, let's just step back and say, you know, we feel good about our ability to deliver against the guidance that we've indicated.

Thank you.

Thank you. The next question comes from Sanjeet Aujla of UBS. Your line is now open. Please go ahead.

Hi. Morning, Dave, Nik, and Sonya. 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? 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 one, our depletions were tracking ahead of shipments. You can see that gap actually having increased back to what we had said. We wanna ensure that we end the year with the appropriate levels of inventory in trade. Again, we can't manage obviously the full sell out through retail. I think you would expect to see that similar level that's been baked into our full year guidance.

Got it. Thanks.

Thank you. The next question comes from Edward Mundy of Jefferies. Your line is now open. Please go ahead.

Morning, Dave, Nick, and Sonia. 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, you know, broadening, you know, parts of the industry you're not currently, you know, playing in, or is that more a comment around, you know, making the business more efficient?

The nub of 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, you know, be greater than the other, when you think about the scale of those two things?

Thank you, Edward. Look, you know, to answer all of those questions, we wouldn't need to have the Capital Markets Day. 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. It's a quite a fundamental piece of work that's, you know, starts, as it should do, with the consumer, looks at the capabilities of the organization, looks at the portfolio.

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. The detailed answers to your questions, I will, you know, 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 at this point.

Understood. Thank you.

Thank you.

Thank you. The next question comes from Olivier Nicolai of Goldman Sachs. Your line is now open. Please go ahead.

Hi. Good morning, Dave, Nik, and Sonya. First on Mexico, just wanted to clarify something that you put in the press release. 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. Secondly, since the last result, you've put John O'Keeffe in charge of the U.S. Could you give us a bit more detail on his mandate and the key KPIs? Thank you.

Nik, why don't you take Mexico.

Sure

North America.

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

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, you know, 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. I think as we've been doing that, clearly we see a encouraging set of shared trends. There will be some lag before you see the full results, but I think what we're seeing from a shared 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.

As well as Dave said, you know, 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. More to come on that. Dave, I'll hand over to you for the U.S.

Thanks. Indeed. Thank you, Nik. 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. I put on record our appreciation for everything that Sally has done for Diageo in her time with us. In nominating John, we take one of Diageo's most experienced 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. He's been an intrinsic part of the strategy exercise that's ongoing.

His remit is to step back and advise and guide us in terms of how it is we can improve the competitiveness in North America. As Nik says, we'll share the details or some of the details of that when we meet you in August.

Thank you.

Thank you. The next question comes from Richard Withagen of Kepler Cheuvreux. Your line is now open. Please go ahead.

Yeah. Good morning, Dave, Nik and Sonya. A question on the World Cup. This is a bit of a, you know, a first for you in terms of activation and so on. I think you've selected a couple of brands to focus on specifically. Can you sort of describe what are your longer term benefits that you expect from the FIFA World Cup activation, please?

Do you wanna go Nik, or shall I?

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

Look, Richard, it's the first time there's ever been a spirit sponsor of the World Cup, right? It's not been done before. In that sense, we're all gonna 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. 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 gonna be a learning curve. We'll see how the World Cup goes in North America. The build up to it, as I say, I'm in the U.S. here, and I reviewed something yesterday, the build up to the World Cup seems strong.

We don't know. There is no history in terms of how the brands will respond to activation. 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. 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 for football that exists in that part of the world.

Thank you.

Thank you. The next question comes from Sarah Simon of Morgan Stanley. Your line is now open. Please go ahead.

Yes. Good morning all. Just a quick one on the Canada commercial dispute. Is it right to assume that that will all drop to the bottom line? 'Cause I think there's no volume, it's just a kind of refund or something. Was that kind of included? Did you know that was coming when you gave guidance at H1? Thanks.

To your point on, does it all just drop to the bottom line? Technically yes, but having said that, we 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. We're looking at it in the aggregate of what makes sense for the business as we look forward. That's where that is. Did we know that was coming? You know, obviously we track what the position might be, so we couldn't say with certainty where it was. As I said, more importantly, it gives us some more opportunity to look at potential investment with some returns as we go into Q4.

Great. Thanks.

Thank you. The next question comes from Chris Pitcher of Rothschild & Co. Your line is now open. Please go ahead.

Good morning all. Can I just quickly follow up on Sarah's question, then 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've improved, which would indicate it could be a GBP 50 million-GBP 60 million benefit. I believe you had agreed with the LCBO or with Ontario to increase spending in the province. It sounds like it could almost cover off that. Can I just clarify that? 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?

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. Positively we are seeing that coming through. Guinness, both from an angle of continued, you know, 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. Nothing technical outside of continued momentum on that. From an angle of the question on the Canada piece, no, it's not that high. I wouldn't give you an absolute number. It is definitely a lot lower than what you're referring to.

Yes, there was negative price mix, US spirits. I would say, you know, 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.

Thanks for the clarification. Cheers.

Thank you. The next question comes from Trevor Stirling of Bernstein. Your line is now open. Please go ahead.

Good morning, Dave, Nik and Sonya. Just one question from my side, please. You, this may be one we have to wait until August, Dave. You talked in February about RTDs, and there has been press reports about an increased focus on RTDs being one element of the strategy. I wonder if there's any kind of, sorry, 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. Trevor, I suspect as we go between here and December, just given the nature of where the business has been, there'll 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, you know, we'll be sensitive as we go forward about anything that we would consider to be competitively sensitive. I'm not gonna 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. We will give you a strategic overview, and some real clarity when we see you in August.

Understood. Thank you very much.

Thanks, Trevor.

Thank you. The last question today is from Andrea Pistacchi of Bank of America. Your line is now open. Please go ahead.

Thank you very much. Question on Europe, where you had a strong quarter. 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 brands there, which tend to be a bit more mainstream than they are in the U.S. Thank you.

Listen, I think clearly as you've seen, the momentum on Guinness, particularly in Great Britain and Ireland, continues strongly. I would also say, with some of the broader portfolio play, Dave talked about that with Mina. 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.

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 wanna work with our customers, you know, to be able to drive a shared, growth agenda and drive value for them and for us. Some more to come on that. You know, I think Scotch, tequila, vodka, you know, 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.

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

Thank you very much indeed. 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 the 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, we hope that by bringing it forward to the 6th of August we'll complete all of your questions before you head off for your summer holiday. With that, I thank you again for your time and your support, and we'll see you in August.

Hello, everyone, thank you for joining the Diageo F2026 Interim Results Call. My name is Lucy, and I'll be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. 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 2026 interim results Q&A. I'm Sonya Ghobrial, Head of Investor Relations. 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'd like to ask a question, please use the dialing details included in today's press release. If I could ask if you could limit to one question per analyst, we can hopefully get around to 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 two minutes before we get straight into the 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 three 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. 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 you for questions. With that, over to you.

We take the first question, please? Thanks.

Absolutely. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. The first question today comes from Sanjeet Aujla of UBS. Your line is now open. Please go ahead.

Good morning, Sir Dave, Nik, and Sonya. 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 2027, as you know. We've been clear about what the guidance for 2026 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'll 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 El Niño 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.

Actually, the quantum of gross profit that's come back in that particular case has paid for that investment. I actually think there's opportunity within the portfolio to have some volume return on the investment. 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 going to add guidance for 2027, as we said. Nik, I'll let you on.

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. As you look forward, the ability to look at the gross profit value pool and where we play continues to be you know, the big opportunity.

Thanks.

Next question, please. Thank you.

Thank you. The next question comes from Simon Hales of Citi. Your line is now open. Please go ahead.

Thank you. Morning, Dave, Nik, and Sonya. Sir 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 gonna drive, hopefully, faster innovation and some further efficiencies. 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, be more agile, particularly in the areas of RTDs, is that urgency something we might see show up over the next six months? Are there some, perhaps, new RTD launches already in the pipeline, for example? 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. I think you'll probably come back at the midyear and give us a bit more of a flavor on cost efficiencies from here.

Mm-hmm.

How should we think about the trade-off between reinvestment into the business, given that 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, dare I say, all of our resources. 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.

The innovation plan for the six months in the balance of this year is pretty much set. There's gonna be, as a result of the presentations today, you shouldn't assume that there's gonna be any material change. Now, there's a very good activity plan for the balance of the year, but you shouldn't read that there's gonna 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 GBP 625 million this year. In the first half, we've done 40% of that 50%. 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 2027, and any continuing part of Accelerate will be consumed within that. 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. 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.

Again, I don't think you should read in that you're gonna see material changes in the, in the next six months as a result of the, the comments that I made this morning.

Thank you. The next question comes from Andrea Pistacchi of Bank of America. Your line is now open. Please go ahead.

Good, good morning, Dave, Nik, and Sonya, and thanks. Dave, you talk 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. 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, 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, Casamigos, or do you believe that a broader price adjustment may be required?

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

Andrea, fantastic question. Let me try, and then Nik can add. Look, I think the way that I think about it, 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. 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.

That's where I talked about that price pack architecture. This is where category management really comes to the fore. I think, again, go back to the MENA example, really very encouraged. You see it at play in that example. We launch yet more premium offerings, Bulleit is a really good example, but we slightly tweak the price positioning of, yes, Johnnie Walker, but very significantly with Vat 69, Black & White and J&B, we change those positions. That now doesn't dilute the percentage margin of those three 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 price elasticity that you referred to.

Don't have all of that in every market as we speak, but we will have it before we finalize the strategy. It's gonna be a very targeted, very specific piece of work. We do think, I think from what we've seen so far, that there is a volume response to price repositioning if we get it right. That's the opportunity. 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, you want to add anything to that?

No, I think you've covered it.

Okay. Thank you.

Thank you. The next question is from Gen Cross of BNP Paribas. Your line is now open. Please go ahead.

Good morning, everyone. Thank you for the question. It appears in the presentation that you view the weakness in the U.S. spirits market as very much being principally driven by economic pressure on disposable income. 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? Thank you.

Thank you, 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. 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've shared with you that 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.

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 they 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 gonna 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.

Thank you. The next question comes from Mitch Collett of Deutsche Bank. Your line is now open. Please go ahead.

Thank you. Morning, Sir Dave, Nik, Sonya. A few times in the slides, you have the sort of focus on customer, customer. I guess I've been a customer of Diageo, Sir 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. Thank you.

Mitch, thank you very much indeed. Can I just say, please, it's just Dave, all right? Sorry, I should have said that. It's definitely just Dave. Look, Mitch, I'll be very candid with you. I said I was asked a 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, going, I remember. The feedback I gave them, I don't mind sharing with you, is we always, as Tesco, we're in awe of the branded portfolio that Diageo had, all right? I'm saying that unashamedly. It was always what a fantastic portfolio. Some years, the innovation plan was super strong, some years lesser, but the brands were phenomenal.

We always felt, though, that they didn't really engage with us in thinking about how we ran 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? 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 seven 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, too, as a simple illustration of that.

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. As I say, an opportunity about how we might engage with our customers differently. I think there's a whole area of transactional engagement with customers that operationally we can and we should improve. That will do two 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. The bigger opportunity for us is to think about categories.

On trade, 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. What I want us to do is I want us to start thinking about how we grow with our customers, rather than thinking about how we grow through our customers. Subtle difference, if we're able to do that, then that will yield more value to Diageo shareholders. 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.

Thank you. The next question comes from Laurence Whyatt of Barclays. Your line is now open. Please go ahead.

Morning, Dave, Nik, Sonia. Thanks very much for the question. Just one on your strategic reviews and potential disposals. We sort of see you're progressing with the Royal Challengers 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? Of course, it was speculated last year around brands like Guinness. You've mentioned how you think Guinness is an excellent brand, but no real mention of Hennessy, and of course, that was speculated earlier last year. Wonder if you have any comments or reiterate the comments that were made earlier last year, that's absolutely not for sale?

Thank you. Well, Laurence, thank you. Why don't I say something about the approach in general, and ask Nik to update you on where we are with the EABL and the review that's going on by the Indian business? Look, I think that we will never comment on speculation. One of the things that 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, and the way that we should delever our businesses through disposals. You've mentioned two speculative ones, but they're certainly not things that we have referenced. I want us as Diageo to be super clear. We're not gonna sell brands below fair value.

If somebody were to approach us and make us an offer that we can't refuse for portfolio assets, which are not part of our strategy, then as sensible businesspeople, 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 inverted commas, tail brands, and nor are we active in a couple of things that you have speculated about. Just want to be clear about that. We're gonna 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. Nik, do you want to say something about what we are actually doing in this space?

Yeah. This comes back to precisely what Dave has just said, and I think that's been our position from day one, that we are exiting certain non-core businesses. We never talked about brands. 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. 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 SGF, just to be clear, we have never talked about that. That's speculation, won't comment on that further.

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. The last thing I would say to Dave's point, there's a lot of tail brands that were exited, you know, pre and during my arrival here, and as Dave said, we've been clear, no fireside sale of any of these assets. More importantly, let the strategy first be laid out, and that will determine what we think about our brand and our portfolio going forward.

Very well said. Thank you very much, Nik. Next question.

Thank you. The next question is from Chris Pitcher of Rothschild & Co Redburn. Your line is now open. Please go ahead.

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

Great. 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 gonna share on a call like this is what I might do in the future.

Mm-hmm.

I always consider those things to be competitively sensitive, so I'll decline to give you my rollout plans again, if you don't mind. Look, I think 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. I look at the, I look at the locker as 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 on Guinness 0.0.

I've shown you some of the customer service levels, which are just not acceptable. I've shown you that actually 10 markets are 80% of the business. 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. I don't want to, in any way, constrain the investment in Guinness capacity, given that we have a wealth of opportunities. 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 that we did-

I did.

... we clearly laid out the opportunity, when you look across markets, even where we're present today, as Dave said. Some of that capacity will come on in half two, Q4 in particular.

Yeah.

To Dave's point, with the growth that we're seeing, that's not gonna be enough, you know, for the next two or three years, and we need to continue leveraging on the growth opportunity and the gross profit dollars that brings in.

Spot on. Okay.

Thank you.

Next question.

Thank you. The next question comes from James Edwardes Jones of RBC. Your line is now open. Please go ahead.

Thanks, Sonya. Hello, Dave. 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've gave some detail of what I've been doing in the first seven weeks. This week and next week are with investors, as you can imagine. I've then got a complete getting around, so there's still Africa and there's Asia for me to spend some time in. I just want to make sure that I've got the firmest of foundations in understanding the business we have today. There's then 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. We need to then get ourselves as a team through that evaluation and 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. 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. I give it the challenge that when we come, I hope you're impressed with what we've done. I need to make sure that we do that properly, and that's properly, 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.

As soon as all I'll say to you is, as soon as we've done that, we've agreed it, we'll find the right way of sharing it with you. I'll try to give you some broad timelines, but we'll firm those up as we go through, go through the calendar year.

Thank you. The next question comes from Javier Gonzalez Lastra of Berenberg. Your line is now open. Please go ahead.

Good morning, Nik and Dave, and Sonya. 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?

It's a really good question. It's, you know, the distribution routes in North America are particular. It needs to be planned. It goes 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. It particularly takes time when you've got an event like FIFA that's been built in with all customers for quite some time now. It is possible. You know, 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.

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 gonna have to invest in the North American business in 2027 and on. 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. It's possible to do, just needs to be done carefully and thoughtfully and with some lead time. Nik, do you want to add in to that?

No.

Thank you. The next question comes from Trevor Stirling of Bernstein. Your line is now open. Please go ahead.

Good morning, Dave, Nik, and Sonya. Dave, you've hinted at some of the softer aspects of the redesigning of 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. Look, I have touched on it. I think. Look, there's first things first and foremost, the thing that strikes me, has struck me over the seven years. Seven years, seven years? Seven weeks. It hasn't felt that long, I promise, is the energy in the organization. Actually, coming in, given, you know, the difficulties in the last few years, my, one of the question 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, is a very big and very important positive.

I think there's, 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. People are being quite open to sharing some of that frustration. That's why I refer to it in the presentation in the way that I do. I think the bits of culture that I, you know, the two 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. We need to add that lens of category. It's not there in the way that we think. 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'm not seeing 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. How we inject some pace, so that's for me, and that's for the leadership team.

I've not felt any resistance to that, Trevor. 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.

Thank you. The next question comes from Richard Withagen from Kepler Cheuvreux. Your line is now open. Please go ahead.

Good morning, Dave, Nik, and Sonia. 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 we've, you know, 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 2027, 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? Therefore, if we don't, you know, in the unlikely event that we don't happen to cover it all, how can we mitigate that from elsewhere? What we must do is make our portfolio competitive in North America, not just in one or two segments, but more broadly. 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. This is probably, again, an example, right, of what we can do. You know, 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. 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? 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, facts, 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 and occasion that's coming in there. 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. That's the work that we'll be going through.

Mm-hmm. Thank you.

Thank you. The next question comes from Sarah Simon of Morgan Stanley. Your line is now open. Please go ahead.

Yes, morning, everybody. I just had one question around GLP-1. You've talked about a sort of pretty limited impact from that, which is sort of not surprising, because very sort of generically, there's not that many people on GLP-1s yet. Clearly, the price of GLP-1 is going down, they're going off patent, et cetera. It's not just gonna be a sort of U.S.-centric issue. 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 future? Thanks.

No, thank you, Sarah. Obviously, clear, and, you know, we touched on it in the presentation, and I don't at all want to diminish it. It's something we need to understand, and we need to constantly evaluate, especially, as you say, as the price comes down, 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. Now, you've seen this, I think, was it Morning Consult?

Yes.

Yeah.

Consult.

Consult.

Mm-hmm.

Very interesting deep dive survey that came out, I believe, less than a week ago. Looking at 60, a sample size of around 60,000 GLP-1 users, so one of the bigger samples that we've seen. The attitudes towards different categories in there are really very interesting. What you see is that actually, the impact on spirits is really rather small. In fact, actually, as part of a new lifestyle user... I say that in inverted commas, 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. All of those things actually are positive to wanting to explore the spirits category.

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. I'm just sharing with people the evaluation as it sits today, Sarah.

Thank you. The next question comes from Fintan Ryan of Goodbody. Your line is now open. Please go ahead.

Good morning, Dave, Nik, Sonya. Two 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? Appreciate that 30%-50% is a quite wide range and lower than the market had been anticipating, but, you know, your thoughts around how that should evolve in this, within the range this year and going forward. 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 the dividend cut imply you're less confident with the $3 billion free cash generation minimum from FY 2027 onwards?

That was, I guess, that the business I've been talking to previously. Thank you.

Why, well, why don't I start, and then I'll pass to Nik. I think, look, first and foremost, reconfirming the $3 billion this year, as we have done in the release. I think what we, you know, one of the conversations that the board has been, 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 detail work around those elasticities. What we're saying is, we know the one thing that we can do is not invest in the competitive North American business, that's what the board has factored into its decision.

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. It's that combination of investments, needing 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 a desire to rebuild the balance sheet more quickly. That's what's driving the decision to revisit the dividend policy. When it comes to payout ratios, why don't I pass to you, Nik?

Yeah. I think just building on Dave's point, stepping back and when we were sitting at, you know, 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? We're very aligned on that, so there's no issue there.

Yeah.

Right? The second thing I would say is, clearly, our view of the U.S. market and the U.S. spirits category was quite different. If you remember, we talked about the fact that we weren't expecting a further deterioration for where we were in fiscal 2025. 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? If we wanna 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?

The best way to do that, to invest in the business, was to come out 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. We all recognize that we wanna 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. I'll stop there because I don't think there's anything more to say there.

Totally agree.

Thank you. The next question comes from Pierre Tegnér of Oddo BHF. Your line is now open. Please go ahead.

Thank you, Sonya. Good morning, all. First, welcome back, Dave, and big thanks for the first thoughts you share. Very interesting. As a follow-up to the previous questions on the more frequency, and the need to raise the bar in term of category management. Do you think the spirit industry is embracing clearly a new big challenge of doing more frequency on a more speedy way, increasing velocity and asset rotation, which may be lower percentage margin? On a more global thinking, how much is it suggesting a big change of the future driver for cash generation and ROIC? I would 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. I think there's two 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? When you look at how people engage with it, and you look at how it grows in line with GDP, it's remarkable. 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, 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. 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. 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? Yeah, in some cases, possibly, yes.

Like, I look at RTDs, I look at that trend, and I perhaps see it ever so slightly differently than maybe historically people see it. You know, we look at it, if I may be so bold, I think Diageo historically would have looked at it and said, "Well, 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 phenomenon a couple of times for Diageo. If you look at it through the lens of a cost to serve, you see a completely different mechanic, right?

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. 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. 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 ever so slightly differently. 'Cause, look, I was taught very early in my career that you don't take percentages to the bank, you take cash to the bank.

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. 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, we've not had in the business before. I'm not precursing a massive change in the spirits market, given the way your question started. Anything you want to add?

No, sure. All good.

Cool.

We'll take one more.

All right, Sonya, we'll take one more.

Our last question today comes from Edward Mundy of Jefferies. Your line is now open. Please go ahead.

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

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?

Ed, nice to hear you again. What a very clever way of getting three questions into one. I like that. Look, I think when it comes to category and brand, I think if you think about Diageo historically, you think about premium, you think the only way to grow a brand is A&P. Actually, when you think about category portfolios, there are very different ways of thinking about how you build brands. 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 as other things rather than A&P.

No, I don't think a category brand, a more category-driven approach leads you to a place where you spend more on A&P. I think you have to be a little bit more dexterous about different support models for different brands and different price positions. I think when we talk about growing with our customers, the whole idea here is you're opening new value, right? We used to talk when I was a customer, which is, if the relationship with a supplier is at the size of the cake is constant or is getting smaller, all that happens is you argue over the divvying 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.

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. Yeah, will it mean that we think differently about how we invest some of our money? Yes. Do I see some pockets of spend which actually are not working for our customers or ourselves, and we purpose? 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. Actually, in terms of the back office, I can see ways of actually making it leaner, quicker, and dare I say, even more efficient than today. Look, I don't want to pre-trail 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.

I'd like you to think about that as an enabler of competitiveness rather than a way of reducing costs to invest back in the business. Okay, look, ladies and gents, 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's support, some big decisions just recently. They give us the space to invest in the turnaround, 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. With that, I look forward to seeing, I think, some of you, if not most of you, this evening in the Diageo office. Thank you very much indeed. Have a good day. See you later.

This concludes today's call. Thank you all for joining. You may now disconnect your lines.