Financial Data and Key Metrics Changes - In Q1, organic net sales were flat, with reported net sales of $4.9 billion down 2.2% year-over-year, primarily due to the disposal of Guinness Nigeria and the Shiraz North America transaction [5][8][9] - Organic volume growth was 2.9%, offset by a negative price mix of 2.8%, largely due to the impact of Chinese white spirits [8][9] - The company updated its fiscal guidance, now expecting organic net sales growth to be flat to slightly down for the fiscal year, with organic operating profit growth projected in the low to mid-single-digit range [15][17] Business Line Data and Key Metrics Changes - North America saw organic net sales decline by 2.7%, with U.S. spirits down 4.1%, while Diageo Beer Company grew by 9.2% [9][10] - Europe experienced organic net sales growth of 3.5%, driven by strong performance in Guinness Draft and spirits, particularly in Turkey and the Middle East [10][11] - Asia-Pacific reported a 7.5% decline in organic net sales, primarily due to reduced consumption of Chinese white spirits [10][11] Market Data and Key Metrics Changes - In North America, the tequila category faced increased competitive pressure, leading to a decline in sales, while Scotch and ready-to-drink products showed strong growth [9][10][32] - Latin America (LAC) reported a robust organic net sales growth of 10.9%, led by double-digit growth in Brazil [11] - Africa saw organic sales growth of 8.9%, with broad growth across East Africa and Southwest and Central Africa [11] Company Strategy and Development Direction - The company is advancing its "Accelerate" program to strengthen its foundations for long-term sustainable growth, with a focus on cost efficiency and commercial execution [12][19] - There is a clear strategy to improve operating leverage and enhance decision-making frameworks across the organization [14][15] - The company is committed to returning to its target leverage ratio range of 2.5-3 times by fiscal 2028, supported by selective disposals [17][18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging operating environment, particularly in the U.S. and Asia-Pacific, and emphasized the need for urgency in driving growth [5][6] - The management expressed confidence in achieving $3 billion in free cash flow for fiscal 2026, supported by ongoing cost management initiatives [12][17] - There is a focus on adapting to changing consumer preferences, particularly in the spirits category, and leveraging opportunities in ready-to-drink products [19][84] Other Important Information - The company is experiencing a shift in consumer behavior, with a trend towards smaller sizes and lower-priced products, particularly in the tequila category [32][36] - The management is actively addressing legal challenges related to tequila credentials, ensuring consumer confidence in product quality [43] Q&A Session Summary Question: Insights on U.S. spirits performance and guidance - Management noted that U.S. spirits declined 4.1% in Q1, with some benefits from tariff pull-forwards and highlighted the need to monitor consumer takeoff closely [21][22][23] Question: Competitive pressure in the tequila market - Management acknowledged increased competition in the tequila category and discussed strategies to improve performance for brands like Don Julio and Casamigos [31][32][34] Question: EBIT guidance and margin support - Management expressed confidence in achieving low to mid-single-digit EBIT growth despite challenges, citing cost efficiencies and stronger whiskey performance as key factors [46][48][49] Question: A&P spend reduction and efficiency - Management clarified that A&P development spend was reduced by optimizing agency use and reallocating resources for better returns [57][58][61] Question: Accelerate program and savings - Management confirmed that 40% of the savings from the Accelerate program would be delivered this fiscal year, emphasizing the importance of effective resource allocation [65][66][68]

Financial Data and Key Metrics Changes - In Q1, organic net sales were flat, with reported net sales of $4.9 billion down 2.2% year-over-year, primarily impacted by the disposal of Guinness Nigeria and the Shiraz North America transaction [6][7][10] - Organic volume growth was 2.9%, offset by a negative price mix of 2.8%, largely due to the adverse impact of Chinese white spirits [6][10] - The company updated its fiscal guidance, now expecting organic net sales growth to be flat to slightly down for the fiscal year, with organic operating profit growth projected in the low to mid-single-digit range [13][16] Business Line Data and Key Metrics Changes - North America saw organic net sales decline by 2.7%, with U.S. spirits down 4.1%, while Diageo Beer Company grew by 9.2% [7][10] - Europe experienced organic net sales growth of 3.5%, driven by strong performance in Guinness Draft and spirits, particularly in Turkey and the Middle East [9][10] - In Asia-Pacific, organic net sales declined by 7.5%, significantly affected by the downturn in Chinese white spirits, which impacted regional net sales by approximately 13% [9][10] Market Data and Key Metrics Changes - Latin America and Caribbean (LAC) reported organic net sales growth of 10.9%, led by strong performance in Brazil [10] - Africa showed organic sales growth of 8.9%, with broad growth across East Africa and Southwest and Central Africa [10] - The tequila category in North America faced increased competitive pressure, leading to a decline in overall performance [29][30] Company Strategy and Development Direction - The company is focused on sharpening its strategy and implementing initiatives to drive growth across its portfolio, particularly through the Accelerate program [5][11] - There is an emphasis on improving commercial execution and optimizing trade spend, with a commitment to delivering $3 billion in free cash flow for fiscal 2026 [11][16] - The company is also exploring selective disposals of non-core assets to enhance focus on core growth areas [17] Management's Comments on Operating Environment and Future Outlook - Management expressed concern over the current performance, particularly in North America, and acknowledged the need for urgent actions to drive growth [4][5] - The economic environment is weighing on consumer sentiment, leading to a cautious outlook for the U.S. market [7][10] - Management remains confident in the long-term growth potential of the portfolio, particularly in RTDs and Guinness [17][18] Other Important Information - The company is making progress on cost efficiency and process simplification, which are expected to contribute positively to margins [11][48] - The impact of foreign exchange on reported sales was negligible during the quarter [6] - The company is committed to returning to its target leverage ratio range of 2.5-3 times by fiscal 2028 [16] Q&A Session Summary Question: Insights on U.S. market performance and guidance - Management acknowledged the complexities in the U.S. market, noting that net sales were ahead of depletions, with depletion NSV down about 7% [20][22] - The impact of tariff pre-buying and seasonality was discussed, with management indicating that the unwinding of these factors would not be material in Q2 [24][25] Question: Competitive pressure in the tequila category - Management highlighted increased competitive pressure in the tequila category, with consumers trading down and shifting preferences impacting performance [28][30] - The company is focusing on its portfolio, particularly Don Julio and Casamigos, to adapt to changing consumer behaviors [30][32] Question: EBIT guidance and margin support - Management expressed confidence in delivering low to mid-single-digit EBIT growth despite challenges, citing cost discipline and operational efficiencies as key factors [44][46] - Input costs, particularly for agave, were noted but not seen as a major factor in efficiencies [51][52] Question: A&P spend reduction and efficiency - Management clarified that A&P development spend was reduced by optimizing agency use and reallocating resources for better returns [56][58] - The focus remains on maintaining brand equity while improving marketing efficiency across markets [58][59] Question: Details on the Accelerate program - Management provided insights into the Accelerate program, emphasizing its role in driving savings and improving operational effectiveness [61][64] - The program aims to enhance decision-making speed and resource allocation across the organization [64][65] Question: Margin and operating leverage - Management confirmed that 40% of savings from the Accelerate program would be realized this year, ahead of previous guidance [69][70] - The impact of depletions and consumer behavior in North America was discussed, with management indicating that these factors would be managed throughout the year [71][74]

Financial Data and Key Metrics Changes - The company delivered 1.7% organic sales growth, or 1.5% before the impact of the Syrah transaction in North America [4] - Organic profit declined by 0.7%, including the Syrah transaction impact, and declined by 1% excluding this [4] - Free cash flow was $2.7 billion, up $100 million from last year, reflecting solid working capital management [5] - EPS pre-exceptionals declined almost 9%, mainly due to a significantly lower contribution from Moire Tennessee and adverse FX [5] - Recommended full year dividend remained flat compared to last year, deemed prudent given the current backdrop [5] Business Line Data and Key Metrics Changes - Positive organic sales growth was observed in almost all regions, although operating profits were adversely impacted by increased overheads [4] - In North America, U.S. spirits net sales grew 1.6% organically with a positive price mix of 2.9% [32] - In India, growth was driven by prestige and above whiskey, with the UK-India free trade agreement expected to support future growth [30] - In Europe, Guinness was a main driver of growth, recovering from a period of consumer down trading [46] - In Africa, organic net sales growth was led by Ghana, while Brazil benefited from a more stable environment through premiumization [31] Market Data and Key Metrics Changes - Trading conditions remained challenging due to macroeconomic and geopolitical uncertainty, particularly in key markets like the U.S. and China [29] - The company held or grew market share in 65% of total net sales in measured markets, including the U.S. [29] - Consumer sentiment remains subdued, with 25% of consumers indicating saving money as a top reason for moderating their TBA consumption [24] - Gen Z household penetration of spirits increased by six percentage points to 55% in 2024 compared to 2020 [26] Company Strategy and Development Direction - The company is sharpening its strategy to leverage its portfolio and competitive strengths in an evolving TBA landscape [7] - The Accelerate program aims to deliver $625 million in cash savings over the next three years, focusing on operational excellence and cost efficiency [10] - The company is committed to delivering approximately $3 billion of free cash flow per annum from fiscal 2026 [21] - There is a focus on digital investment to leverage data for actionable insights and consistent metrics [14] Management's Comments on Operating Environment and Future Outlook - The management believes spirits remain an attractive sector long-term, supported by favorable demographics and increasing female per capita consumption [22] - Near-term pressures on the sector are viewed as largely cyclical and driven by the macroeconomic environment [24] - The company expects organic net sales growth to be slightly negative in fiscal 2026, with growth skewed to the second half [57] - Management is focused on instilling confidence in the team and leveraging the strength of the brand portfolio for future growth [62] Other Important Information - The company announced significant exceptional charges totaling $1.4 billion, including a $450 million charge related to Distill Ventures and a $230 million impairment charge for Aviation Gin [52][53] - Closing net debt was $21.9 billion, which was $800 million higher than at the start of the year due to unfavorable foreign exchange movements [54] - The leverage ratio increased to 3.4 times net debt adjusted EBITDA, above the target range of 2.5 to 3 times [54] Q&A Session Summary Question: What are the expectations for organic net sales growth in fiscal 2026? - The company expects similar rates of organic net sales growth to those seen in fiscal 2025, with a cautious outlook for the consumer environment [56][57] Question: How is the company addressing the impact of tariffs? - The company anticipates a 10% rate for UK imports and a 15% rate for European imports into the U.S., expecting to mitigate 50% of the impact in the first year [59] Question: What is the focus of the Accelerate program? - The Accelerate program is focused on delivering cash savings, improving operational efficiency, and driving better growth through a more agile operating model [10][11]