Diageo - H1 2023 (Q&A)
January 26, 2023
Transcript
Operator (participant)
Good morning, welcome to Diageo's 2023 Interim Results Q&A Call. Your call today will be hosted by Ivan, Diageo's CEO, and Lavanya, Diageo's CFO. This conference is being recorded. To ask a question today, please press star followed by 1 on your telephone keypads. We're now ready to start the call. Ivan, please go ahead.
Ivan Menezes (CEO)
Thank you. Hi, everyone, and thank you for joining our interim results call. I hope you've had a chance to read our press release and watch the presentation, webcast on diageo.com. I'm pleased with our results for the first half of fiscal 2023. We delivered organic top line and operating profit growth above our medium-term guidance. Net sales up 9% with growth across all regions. Volume grew 2% even as we implemented strategic price increases. Operating profit up 10%. Organic margin expanded 9 basis points. We generated GBP 800 million of free cash flow, fueling continued investment in long-term growth. We expect to deliver stronger free cash flow in the second half as we lap more normalized working capital movements. We continue to gain our whole share in the majority of our markets, 75%.
Our super-premium plus brands grew organic net sales by 12%. I'm particularly pleased with the strong growth in Scotch, up 19%, tequila up 28%, and Guinness up 17%. On a constant basis, Diageo is 36% bigger than before pre-COVID, and with a 4-year CAGR for organic net sales of 8%. In North America, organic net sales grew 3%, lapping strong double-digit growth in the first half of fiscal 2022. US spirits net sales grew 2% on top of strong double-digit growth for four consecutive halves, and we had depletions ahead of shipments. Our US spirits business is 44% larger than fiscal 2019, with net sales growing at a 4-year CAGR of 9.4%. We took price and held share of TBA. As expected, growth in the US spirits category is normalizing, trending towards a historical mid-single-digit range.
Consumer demand remains resilient, the market continues to premiumize. 33% of American drinkers surveyed said they had spent $50 or more on a bottle of alcohol in 2022, and that was up from just 24% in 2021. In Europe, organic net sales grew 10%, and we maintained volume despite the challenging economic environment. Asia Pac grew 17% despite Greater China, which only grew 2%. Latin America grew sales by 20% and delivered the highest margin across all our regions in the half. This business is 64% larger versus fiscal '19, with net sales growing at a 4-year CAGR of 15%. I'm very proud of our performance in Latin America. In Africa, net sales grew by 6% with growth across all markets. We're delivering consistent returns for shareholders, increasing our interim dividend by 5%.
Today, I'm pleased to announce an additional return of capital to shareholders, up to GBP 500 million in fiscal 2023. As I look ahead to the second half of fiscal 2023, I am pleased with our start in January and the resilience of our business. I'm confident in our strategy and ability to deliver our medium-term guidance. With that, I'll turn it to the operator. Let's take our first question.
Operator (participant)
Of course. If you'd like to ask a question via the telephone lines, you can do so by pressing star followed by one on your telephone keypad. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. As a reminder, that's star followed by one on your telephone keypad now. Our first question comes from Sanjit Ahluwalia of Credit Suisse. Sanjit, your line is open. Please go ahead.
Sanjit Ahluwalia (Analyst)
Morning, Ivan and Lavanya. A couple from me, please. Firstly, could you just give us a sense of where you see US spirits sell-out trends at the moment, and how that contrasts with inventory levels and the numbers you've given us on the shipments and depletion so far in the first half? Secondly, would just love some early thoughts on how Chinese New Year has gone. Thanks.
Ivan Menezes (CEO)
Sure. Hi, Sanjit. The US consumer is robust. If you look at the industry, we see it growing at about 4%, 5%. You know I've said this for a long time, a couple of years or more, that post-COVID, we expect the industry to come back to that mid-single digit growth range. What I'm really pleased about is the consumer, through the last 6 months, has come to that range. We're feeling very good about it. Within that, premiumization remains strong. You see in our numbers, our super-premium plus business grew 10% in the US Feeling really good about the health of the US consumer. You know, the spirits industry has 20 years of volume growth, taking share of TBA, outperforming beer and wine.
Premiumization is strong, and I quoted those numbers of the robustness of above $50 a bottle. Overall, strong, robust and pretty much where we expected it to be. If I turn to Chinese New Year, clearly the... I mean, there's 3 pieces to Chinese New Year. The, the sell-in before, what happens in the couple of weeks, and what happens after. The sell-in before we were cautious, obviously with the lockdowns and the COVID conditions in China. Actual Chinese New Year itself is subdued in terms of socializing and consumption, and certainly the large events are more subdued. We remain optimistic about China recovering fast, both for our Scotch business and for Baijiu. As we go into Q3 and Q4, we're very much playing and into assuming a strong recovery.
obviously we have to watch it week by week, but I'm feeling positive about the China consumer environment going forward.
Sanjit Ahluwalia (Analyst)
Got it. Just a quick follow-up there on the US If you think the industry is growing 4%-5% in sell-out terms, do you think Diageo is outperforming that? Just a quick word on where you think inventory levels are and how comfortable you are with that in the US
Ivan Menezes (CEO)
Yeah. turn it to Lavanya.
Lavanya Chandrashekar (CFO)
Yeah. I'll address your question on inventory in a bit, but in terms of our performance in the US itself, I mean, we're holding share of TBA in the US. You know, that's, we're feeling good about that. Obviously not. We were growing share, we'd like to go back to that. You know, Ivan has a very strong point of view on that, I know. Coming back to inventory levels. Fiscal 22, we ended fiscal 22 with healthy inventory levels. We, you know, talked about this in July when we announced our results. Inventory levels were close to, back to close to where it was pre-COVID, right?
A little bit higher on imports just because the supply chain was longer, broadly back to pre-COVID levels on inventory levels. Where we ended the half, we ended with inventory levels at distributors slightly below where we ended last fiscal year. Not because we wanted to destock or we needed to destock, just because December was a really good month. You know, a lot of depletions happened towards the end of December, especially, which has led to inventory levels being a little lower. We feel good about where inventory levels are. You know, the... We're lapping the replenishment of inventory last year, because if you go back to the start of fiscal 21, you're fiscal 22, sorry.
We were coming off of a very, very, very high growth rate in fiscal 2021. Fiscal 2021, we grew 24% on US spirits. When we started fiscal 2022, it was very low levels of inventory across the entire supply chain, which we replenished through the year. Some brands came in faster, some brands came in a little later in terms of the when supply was available. That's what we're lapping here on ships versus depletes.
Ivan Menezes (CEO)
I'll just add, we've held TBA share. I think if you look below that, what I'm really pleased with is we're gaining substantial share in the on-trade. The on-trade in the US, and NABCA has the most reliable data here. If you look at NABCA on-trade, it's about 20% bigger than pre-COVID, and we've gained outsized share. And to me that's a huge measure of the health of our brands and the portfolio. Even in these last six months, we gained over 100 basis points of on-trade share in NABCA.
Sanjit Ahluwalia (Analyst)
Great. Thank you, Ivan and Lavanya.
Operator (participant)
Thank you. Our next question comes from Olivier Nicolai. Oliver, your line is open. Please go ahead.
Olivier Nicolai (Head of Consumer Staples Research)
Hi. Good morning, Ivan, Lavanya. Just a couple of questions, please. First on the, on the US, just following up there. As comp normalize, should we assume a stronger sales performance in H2 North America in term of organic sales growth? If we think about the margins, obviously margins was down in H1 in North America. When could we expect a stabilization in margins in the US? What leads kind of a gross margin inflection to start with? Just on FX, a quick question for you, Lavanya. You flagged that you were expecting $300 million positive impact on FX for this year. How much transactional FX impact do you expect this year? Is it fair to assume further transactional FX impact in fiscal 2024? Thank you very much.
Ivan Menezes (CEO)
Maybe I'll take the first part on US top line and Lavanya on margins and FX. We do anticipate, as I talked about earlier, the US industry should be in solid mid-single digit growth in the second half. We expect to perform in line, ideally better, but that's our going in view. Focusing on the consumer, I think, we feel positive about our ability of consumer offtake to be in the mid-single digit range. Now, we have a intense sellout culture, right? As we look at managing the depletions and shipments, you will recall from last year's results, because we were in the restocking phase, we had shipments ahead of depletions 3 points when we closed out the year. We will lap through all that stuff, but to me, that's just supply chain.
The main thing, most important thing is, ensuring we're well-positioned to win with the consumer. We've got phenomenal marketing plans, great innovation. We've got Super Bowl coming up, Crown Royal is gonna be on the Super Bowl for the first time. Really excited about that. The team has a significant ammunition behind our brands going into H2. I'm feeling good about our ability to win with the consumer.
Lavanya Chandrashekar (CFO)
No, Olivier Nicolai, to your question on margins in North America, I mean, look, I'll just start off by reminding us that North America is, has very, very strong margins, 41% operating margin. You know, it's, was the highest margin region for this business, just got toppled by Latin America, who surpassed them by 30 basis points. It is, you know, one of our strategies has been to invest in North America for growth because every point of growth in North America comes with really, really strong margins. What you're seeing in the margin story is a bit of that. We have invested in, you know, strongly in A&P, also in digital and capabilities to enable continued strong growth of the business in North America.
You know, the growth margins, some of it is inflation, the impact of that is what we're seeing there. Again, we have many levers to offset inflation, you know, premiumization, volume growth, pricing, and the work that we do on revenue growth management. All of that helps us to offset inflation. I'm not concerned about where the margins are in North America. I think it's a very healthy P&L and business in the US FX, that was your second question. In terms of transactional FX impact, not really expecting much in terms of transactional FX impact. Our major currency pairs are hedged. As you saw in the first half, we really did not have any impact from a transactional perspective on FX.
Olivier Nicolai (Head of Consumer Staples Research)
Thank you very much, Lavanya and Ivan.
Ivan Menezes (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from Pinar Ergun of Morgan Stanley. Pinar, your line is open. Please proceed.
Pinar Ergun (Analyst)
Good morning. Thanks for taking my questions. I have one on marketing. Diageo has invested very significantly into marketing in recent years, and you're indicating that the investment will rise faster than sales in H2. How do we reconcile that with your expectation of moderating sales growth across all regions? Specifically in the US, are your market shares evolving in line with your expectations given the investment that's gone into this region? Then two quick clarifications, I guess. One is on free cash flow. Can you please take us through the different moving parts here? Why, how the creditor balance has shifted so much and so on? On capital allocation, has your thinking evolved at all now that the cost of borrowing has gone up substantially? Does that change how you approach buybacks, M&A, and so on? Thank you so much.
Ivan Menezes (CEO)
Thanks, Pinar. I'll take the first two on marketing and share. Marketing, we, as you know, we built a lot of sophistication in the data and analytics and tools we now have to assess marketing effectiveness. As we look to the second half, we see very good opportunities to step up the investment behind our brands, and that's why we indicated in the second half, we intend to increase our reinvestment rate. This is built up by market, by brand, and very much with the degree of confidence on returns. Now, our marketing is not just to make the second half sales number. It is about the next three years, right? Everything in our business, upweights in marketing are not for short-term return alone.
You do get some short-term impact, the bulk of the impact really comes down the road. In line with our goal to be a very reliable top-tier compounder, this flywheel of Diageo of, you know, upweight investment, drive efficiency, and get quality top-line growth. It's really in that context because we really want to ensure we're setting ourselves up well for the quality of growth through the medium term. It's going against very specific brand opportunities where we have a high degree of confidence in the return that we will get for this investment. I have to say, the quality of our marketing continues to step up significantly, and I feel really good about that.
On market share, I mean, we are firstly at a global level where 75% of the world is in green. That's a high benchmark, and I'm pleased with that. In the US context, we're holding share at TBA. We're coming off a period where we've grown significant share. We've also taken price ahead of the industry, if you look at the last 3 years. Flat share in the first half, but fully expect and want to do better, as Lavanya alluded to earlier. We want to get back into the share growth mode in the US I expect in the medium term we will do that.
That also takes me to the point, when you look at our portfolio in the US, we've got a phenomenal tequila portfolio, which has still a long way to run. We're the leader in whiskey, and whiskey is a hot category. Innovation, we've got a lot of exciting things in the pipeline that are gonna be coming in to second half and into F 24. Our execution and investment levels in the US I do feel good about the ability of our US business to outperform the industry going forward.
Lavanya Chandrashekar (CFO)
Pinar, on your question on, you had 2 other questions, one on free cash flow and capital allocation. I'll take the free cash flow question first. What we are seeing on free cash flow, is working capital specifically, is the lapping of what happened last year. Again, I go back to, you know, reminding us of what happened in fiscal 2022. You know, we were coming off of very low inventory levels in the entire supply chain. We had a phenomenal growth year in fiscal 2022. We grew 20% with 10 points of that coming from volume. We were buying a lot of stuff, right? Bottles, grains, marketing spend. Our total spend increased dramatically, and with that, our creditors increased tremendously in fiscal 2022.
Our creditors have increased in fiscal 23 and half one as well, but not, just not to the same extent that it increased in fiscal 22. What we're lapping is that huge increase in creditors that happened in fiscal 22, and that's about GBP 500 million of lower creditor increase this year than the increase of last year. In addition to that, we have invested more, a little bit more on inventory, mainly to ensure, you know, our ability to support continued growth of the business across, as you know, APAC has grown tremendously, Latin America has grown tremendously. There's been about GBP 150 million of increase in inventory. The third piece is investing in maturing stock.
This is something that I had spoken about, as we announced results last year. It is a part of our capital allocation strategy, is to continue to invest in maturing stock to support the growth of our business. Almost around half of our business today is in aged inventories. I mean, with the growth of tequila, et cetera, and the growth of Scotch, the 19% growth of Scotch that we've seen this half is a good example of that. We're investing behind that. That explains the three pieces to the moving parts of free cash flow.
As we've indicated in the press release, I do expect that, you know, working capital will increase in the second half simply because what we're comping in the second half of last year is a little easier. You know, this business remains a very strong cash generating machine, no change to that. In terms of capital allocation and has our thinking evolved, the short answer is no. We have a very consistent and disciplined approach to capital allocation. You know, we will invest first in the business. Lots of room to grow. We still have our ambition of going to from 4% market share to 6% market share. We will continue to invest in CapEx, maturing stock in P, as Ivan discussed.
M&A, you know, we will be looking for interesting bolt-on acquisitions, as we have done in the first half, you know, where we just announced Don Papa. We're very excited about that, we will continue to look for opportunities there. We'll also be disciplined on the other side from a divestiture portfolio, as we have been. Dividend, we will continue to be a progressive dividend payer. We've announced a 5% dividend increase in this first half of this year. Return of capital, we've announced an additional GBP 500 million of return of capital for this year, and we will come back at year-end results with a further update for next fiscal if the board decides to do so.
Pinar Ergun (Analyst)
Thank you very much.
Operator (participant)
Thank you. Our next question comes from Nik Olive of UBS. Nick, your line is open. Please go ahead.
Nik Olive (Analyst)
Hey, yeah, good morning. Thank you so much for the questions. Just one on the US, and just to make sure that I'm clear. When we think about US underlying trends, we're thinking kind of 4% to 5%, right now, with edge outperforming, given the Tequila portfolio. Is that the best way to think about growth for the US market? Then I'll come back with other questions afterwards, if that makes sense.
Ivan Menezes (CEO)
The US market at mid-single digit. Yeah. That's what we've always said the market will return to, and that's what we're seeing, and that's what we feel confident about going forward. It's driven very much by demographics, taste preferences. It's a long-term secular trend, which that is right, that level of growth for the industry.
Nik Olive (Analyst)
Great. Thank you. When we think about, you know, marketing investment in the US, I guess 'cause there's been unprecedented pricing levels coming through, is the best way to think about marketing investments still, you know, marketing as a percent of NSV or should we think about it more in absolute terms when we do our modeling? If there's any thoughts there will be helpful.
Ivan Menezes (CEO)
I mean, if you look at the last three, four years, we've massively upgraded our investment in the US market. We don't target a % of reinvestment. We actually build our plans bottom up, right? You take a brand like Crown Royal, I mean, we put in place a very rigorous process of what is the right level of spend behind Crown Royal and what mix of activities we put in behind. We build our marketing budgets bottom up. What you see in the trend is our orientation is to lean in and spend more because we do believe there's plenty of attractive growth to be had, and we're very focused on the sustainability of the growth. As I talked about earlier, this is not just about delivering a return in the next six months.
That's the approach we take. The US market, I've always said this, it's, there's any opportunity to spend more, we will.
Nik Olive (Analyst)
Okay, great. Thank you. Final question. I think back last August, you were talking about, you know, share gains for Diageo in the on-premise were one of the reasons why, obviously maybe there's a disparity between the Nielsen and NABCA data and, you know, what Diageo was reporting. Is the on-premise share gains still continuing?
Ivan Menezes (CEO)
Yeah, very much so. I said we had over 100 basis points of share gains in the last 6 months. We're feeling really good about our on-premise momentum. Claudia and the team made some really big changes in our approach to the on-premise about 3 years ago, you just see the consistency of performance coming through now. That's a phenomenal indicator of the health of the business. I'm really happy to see the growth in the on-premise, the share growth in the on-premise.
Nik Olive (Analyst)
Great. Thank you so, so much. That's really, really clear. Thank you.
Operator (participant)
Thank you. Our next question comes from Simon Hales of Citi. Simon, your line is open. Please go ahead.
Simon Hales (Managing Director and Senior Equity Analyst)
Thank you. Morning, Ivan and Lavanya. I have 3, please. Firstly, sorry to labor the point, can I just come back on the US depletion trends first, Ivan? Obviously, you said that you held TBA share in the first half. Am I right to read that as a share loss in spirits and a share gain in beer from a depletion standpoint? If that's true, what's really been driving that relative depletion share loss in spirits in the first half, and what gives you the confidence that we'll see the pickup, so you'll be growing spirit depletions, at least in line with the wider market in the second half of the year? That's the first one.
Secondly, you know, at the group level, I think price mix was running in the 7.5%, 7.6% in the first half. You indicated that pricing was up high single digits. Perhaps the implication of that is that mix overall was a bit negative globally. Is that correct? Is it geographic mix that's driven that, some channel shifts? Just some color there would be handy. Finally, for Lavanya, with regards to the share buyback outlook from here, obviously you said that given the, you know, the macro uncertainty, we might be at the lower end of the 2.5 to 3 times leverage range for now.
How do we think about sort of how you'll think about buybacks when we get to the full year and beyond? Does it make it more difficult in the current environment to perhaps commit to a multi-year share buyback program? Perhaps therefore, we should more think about rolling 6 months or 12 months forward commitments to capital return from here.
Ivan Menezes (CEO)
Okay. I'll deal with the share question and then turn it to Lavanya. Firstly, the share is consumer offtake, right? It's not depletion. Depletions is wholesaler, distributor sales to retailers. When you look at us holding share of TBA, that comes in part from spirits doing better than beer and wine, right? We are benefiting from the 20-year trend of spirits steadily gaining share of total TBA. We've held share there. Now, to your question on channels, we did gain share in the on-trade, as I talked about earlier. We are marginally down in spirits in the off-trade. You have to remember, we're stronger in NABCA, which is a very stable channel to measure. Nielsen tends to be more promotional.
We've taken, as I mentioned earlier, if you look at the last three years, we've taken more price. We've led the industry on price on spirits. Net-net-net, we're about flat. Our intention is, as we go forward, is very much to look at getting back to sustainable share growth. That's how I would characterize the share performance. Lavanya?
Lavanya Chandrashekar (CFO)
Thanks, Ivan. On price, Simon, what we said was that price contributed to high single digits growth of NSV. Right? I think that's the clarification to your question on price. On share buybacks, I mean, you know, if I just point to the fact that, you know, prior to fiscal 19, Diageo did not have a multi-year share buyback program for well over a decade. You know, we have been very consistent in returning value to shareholders. You know, and our TSR is on a 5-year and a 10-year basis is extremely strong. We will come back at the results with further guidance on share buybacks. Our, our approach to capital allocation continues to be very consistent, so.
Simon Hales (Managing Director and Senior Equity Analyst)
Got it. Thank you.
Lavanya Chandrashekar (CFO)
We'll come back.
Operator (participant)
Thank you. Our next question comes from Celine Pannuti of JP Morgan. Celine, your line is open. Please proceed.
Celine Pannuti (Head of European Staples & Beverages)
Thank you. Good morning, Ivan, and good morning, Lavanya. My first question is on the, your margin bridge. We've seen growth margin under pressure in the first half. Can you help us on how we should look at your cost set up in the second half? Maybe as well in terms of the price insight, you know, are we expecting further price increases? I was looking at that bridge, you know, I think marketing you said will be up. How should we think about the AGMA bucket in the second half? My second question is on trying to come back on Chinese growth there. You said that you expect a very strong Q3, Q4.
o the growth rate of the market for international spirits in your team, what do you think the growth rate could be in China? What are you planning for not only for fiscal year 2023 H2, but as well for the fiscal year, the first half of fiscal year 2024? Can I also ask on another number? If you said normalization of growth in Europe in the second half, what is the normalization of the market growth you are looking for? Thank you
Ivan Menezes (CEO)
Hi, Celine. Let me deal with China, Europe, Lavanya will cover margins. In China, just to be clear, I'm not saying that we're gonna have a massive acceleration in Q3, Q4. I'm saying, I said earlier, we are ready for the recovery of the Chinese consumer. I don't have a crystal ball on the pace at which that'll happen. We're confident it's gonna happen. Whether it takes one or two or three quarters, we'll need to see. We're certainly, our approach to the marketplace in terms of marketing support, distribution, is very much counting on a recovery of the Chinese consumer. The phasing of it, I think we'll obviously need to watch in the next few months.
I think longer term, we remain confident about double-digit growth in China for our business, both in international spirits, which is primarily top-end Scotch, and in Baijiu. We feel confident about China being a accretive growth engine for Diageo. As you know, it's at very high margins. We have very good margins in China. We're encouraged with the reopening of China that we shall see good momentum. The phasing and timing of it, obviously, we will watch very closely and stay very agile to respond to. On Europe, I mean, I'm delighted with our performance in Europe. I mean, 10% growth in the first half, strong market share gains in spirits, and phenomenal performance on Guinness.
I know it was in the presentation, but I have to say it again. Guinness is now the number one beer in the British on-trade. I never believed I'd see this day. It's fantastic. The brand is really healthy. We're gaining share. We're gonna watch. The European consumer obviously is something that we've put a lot of scrutiny behind. We're confident we will continue to maintain the share momentum. What the external world does, we will deal with. We've been pleased with the resilience of the sector as we've gone through the first half with all the negative news flow on consumers in Europe. Our category and our sector has held up very well. We hope to see that continued resilience going into the second half.
Lavanya Chandrashekar (CFO)
Celine, on your question on cost in the second half, price increases, and operating margin in general. On cost, look, we've seen higher inflation in the first half of this year than we did through last year. A lot of it was driven by energy costs. On the other hand, you know, we also have a lot going for us in terms of the levers that we have that helps us deal with inflation. You know, volume growth, 2 percentage points of our growth this half has come from volume, and that gives us operating leverage all the way through the P&L. Premiumization, revenue growth management, we have taken more pricing, and smartly while holding market share at, in 75% of our measured markets, holding or growing market share in 75% of our measured markets.
Aged liquid is definitely a help gives us some hedge as well, in the sense that any inflation that happens on our aged liquid gets deferred to the P&L. Productivity, I do want to remind us of, you know, we've delivered 220 million GBP of productivity in this half. And, you know, that's a great way for us to offset inflation as well. Cost in terms of what I see coming forward in the second half, I mean, inflation, you know, it's persistent. It's, it's not, it's not increasing, but it's not going away either. We are hedged from a commodity exposure perspective, so that for the second half and beyond. Price increases, we will...
We take price increases across markets at various points in time. Especially when you think about the emerging markets, there are there will be pricing action that will continue to happen through the second half of the year. Overall, from an operating margin perspective, what I'd say is that, look, we have a medium-term guidance out there to consistently grow operating profit ahead of net sales. That is what, you know, we're reaffirming our medium-term guidance.
Celine Pannuti (Head of European Staples & Beverages)
Thank you.
Operator (participant)
Thank you. Our next question comes from Edward Mundy of Jefferies. Edward, your line is open. Please go ahead.
Edward Mundy (Managing Director and Senior Equity Analyst)
Morning, Ivan. Morning, Lavanya. Two questions from me. The first is just a really sort of big picture question. You know, you set out the medium-term guidance range to grow sort of 5% to 7%. I know that's a medium-term range, but, you know, you've clearly delivered growth in excess of that after a couple of really big years. You know, you're CAGR-ing about 8% since pre-pandemic levels. How confident are you that you can grow off this higher base? Do we need to go through a period of digestion, you know, given these significant gains and the very, very strong momentum after the last couple of years?
The second question is sort of what evidence are you seeing of weakening consumer spending power so far, is it in some of the volumes amongst certain consumers? Is it certain countries? Are you seeing the downtrading? How are you really adapting your business and getting ready for a potential weakening environment?
Ivan Menezes (CEO)
Sure. I'd say, to the first part of your question, we are confident in the 5% to 7% top-line growth. I think the way to think about it, Edward, is TBA worldwide has very positive trends, right? You've got premiumization that's strong. You look at the emerging markets and penetration is still low. You've got 600 million new consumers coming into the market. You take places like Latin America and India, Southeast Asia. In the developed world, we feel really good about the continued gains of spirits from TBA outperforming beer and wine. We pressure test this all the time, right? We're not just sitting here. We do strategy teams kind of run through a very rigorous kind of modeling of world economies, consumer behavior, sensitivities to shifts.
Putting that all together, we do feel confident in the 5% to 7%. On the big... We've got market dynamics. I mean, we've got tough markets, right? Nigeria is a tough market. Africa, as you can see, is a bit slower in growth at 6%. We put the focus there on margin improvement, and not chasing the lower end of the portfolio. We've got different dynamics at different places, but by and large, the trend of premiumization is strong and intact. Our super-premium plus business, I think it was in my presentation, every region grew double digits in the first half. We're not seeing a weakening of the premiumization trend, I mean, really anywhere, Latin America, Asia, India, and certainly in the developed world. We have the portfolio.
I mean, I think what you see in these numbers is Diageo's footprint is a real advantage. The brands, the categories, the price points, and the geographies. At any point in time, when certain parts of the world are going through corrections or markets have slowed down, et cetera, we've got the ability to deliver this resilient performance and consistent performance. And that's very much. Of course, we've got challenges in certain geographies, but we can offset it with outperformance in others. That's where I believe the culture of our whole approach to this is being very agile operating as one Diageo, Debra, and in her role overseeing the markets for supply chain and marketing, we're making very quick decisions as we see shifts in end markets that enable us to sustain this quality growth.
Edward Mundy (Managing Director and Senior Equity Analyst)
Great. Thank you.
Operator (participant)
Our next question comes from Mitch Collett of Deutsche Bank. Mitch, your line is open. Please go ahead.
Mitch Collett (Director and Equity Research Analyst)
Thanks. Good morning, Ivan and Lavanya. Going back to the US, you said you're holding share of TBA in the US, and that spirits is gaining, which I guess implies that you're currently losing share of spirits despite the strength of tequila. If I look at NABCO and Nielsen, the big difference appears to be prepared cocktails, which as a category is growing something like 50%. I think your ready-to-drink in the US, which I appreciate may not be all prepared cocktails, is about +18%. Can you maybe comment on what you're doing to close that gap and whether that's gonna be a strong driver of growth for you in the US going forward? Just to come back on margins for the group.
You've obviously got marketing to sales being a drag in the second half, having been a tailwind in the first half. Lavanya, I think you said input cost pressures are likely to persist. Can you therefore comment on whether you think margins in the second half are likely to be up or down year-on-year? Thank you.
Ivan Menezes (CEO)
Sure. I'll take the first part of the question, Mitch. Firstly, you are right. The acceleration in RTD spirits has been an important piece of the spirits market growth. Our strategy there is we're not chasing RTD growth. We want to be in the premium end of. Premium convenience is the way we look at the opportunity. We're very focused on building a sustainable quality premium business in this space. There's a lot of growth right now happening in RTDs, which is we're not interested in. The second thing I would say is actually if you look at our share performance within bottled spirits, it is strong. We're gaining share.
We absolutely believe, having a healthy core spirits business is fundamental to our long-term health and outperformance in the US I'm really pleased with that. That's to your question, and I'll turn it to Lavanya.
Lavanya Chandrashekar (CFO)
Yes. Mitch, on your question on margins in the second half, I mean, we're not giving guidance here for, you know, the short term. I'd reiterate our medium-term guidance of growing operating profit ahead of net sales on a consistent basis. As I said, I mean, like, there's many levers that we have in the portfolio, you know, that helped us to grow margins. Yes, input cost inflation is, we're not seeing it coming off, but as I also said, we are hedged. And that does protect us. We have taken pricing in the first half. We will continue to do so in the second half.
Some of the work that the teams have been doing on revenue growth management, which is really helping to move the mix to more super-premium end, you know, to Johnnie Walker Black Label and above, is a strong driver of margin improvement for us. You know, we're seeing this happen across all regions. You see our Scotch growth in, even in Africa and Latin America and APAC. Scotch in total has grown 19% and contributed to 50% of the growth of Diageo. Scotch is a highly profitable category. There are many levers to get, to have, that we're working on all simultaneously, including productivity. I feel confident about our ability to deliver a consistent, healthy shape of the P&L.
Mitch Collett (Director and Equity Research Analyst)
Understood. Thank you both.
Operator (participant)
Thank you. Our next question comes from Laurence Whyatt of Barclays. Laurence, your line is open. Please go ahead.
Laurence Whyatt (Equity Research Analyst)
Morning, Sir Ivan, Lavanya. Thanks very much for the questions. A couple from me, please. Firstly, on the US business, you've your tequila performance continues to be very strong, but perhaps there was quite significant weakness across the Crown Royal vodka and the Scotch portfolio. With the expectation of getting back to that sort of mid-single digit level, is tequila? I think it's reasonable to assume that tequila performance still outperforms the wider spirits category, that assumes that you're comfortable with slightly lower growth, particularly in those 3 major categories for you. Is that the case? Is there anything you can do about those 3 categories in particular, to accelerate the growth and get them back into positive territory?
Secondly, on LAC, the slide 15 shows your CAGRs over the past few years. Generally speaking, most geographies were around the 7%-8%, but LAC was the standout at around 15%. You've highlighted the improved margin performance in that market as well. Over the past few years, that market has had a bit of benefit from government stimulus checks.
Is there any other reason why you expect the LAC market to continue at these sort of levels? Is it reasonable to continue to see LAC drive, double-digit growth on accelerated margins? Or is that something we should expect to slow down over the next few years? Thank you very much.
Ivan Menezes (CEO)
Sure. Why don't I take the US, and Lavanya, you can cover LAC. The US, we're playing a total portfolio game, right? We are very happy with the quality of our portfolio, when you look at the disposals of the brands we made a few years ago, and then obviously the additions of tequila and Aviation gin and some of the smaller whiskeys we're adding now. Tequila still has a long runway, as we've talked many times before. whiskey, we're very excited about. Bulleit, in these numbers, you can see Bulleit has performed strongly, growing double-digit. Crown Royal, our depletions growth is positive. What you're seeing in the sales numbers is what Lavanya talked about earlier, just the lapping effects and our sellout orientation on keeping the shipment to depletion profile right. We're growing share.
Scotch, actually, both Johnnie Walker and Buchanan's are growing share of the Scotch category in consumer offtake terms. Whiskey, for us, remains very attractive. We're investing strongly behind it. Crown Royal, Bulleit, Johnnie Walker, Buchanan's. Our malts, where if you remember, we've always underperformed in malts. I'm really happy to see our malts performance now come through strongly. I think in the US, we were up 60% in our single malt business. Whiskey will be an engine. On vodka, I think, there's one factor, which is consumer-led, Cîroc clearly has more pressure with the urban multicultural consumer. Ketel One is solid. I mean, Smirnoff is solid. Cîroc, I believe, will come back.
Where we do see the Cîroc business stabilizing over time. We've got other brands like Baileys and Captain, and our new additions to the portfolio, gins with Aviation. When you plot the entire North American portfolio, we play a portfolio game to deliver the total outcome. It's not counting on tequila.
Lavanya Chandrashekar (CFO)
Laurence, I'll take your question on Latin America. Indeed, a standout performance in Latin America, three-year compounded annual average growth rate of 15%. In fact, if you even go back before this, you look at fiscal 2017, fiscal 2018, fiscal 2019, you know, high single digit growth in the Latin American business. What we're seeing happen in Latin America is, you know, we've been growing the business the right way with strong A&P investment, driving, taking price, driving premiumization. It's really the flywheel in action. I mean, I think this is one of our. It's a great example of where that flywheel works in pretty much every geography around the world. Our business in Latin America is predominantly Scotch.
You know, we are growing the premium end of Scotch in Latin America strongly. The work that the team has been doing in Latin America in terms of, you know, on digital, on, you know, consumer-centric advertising, bringing our brands to be front and center of a very dynamic, young consumer base who is really interested in, you know, brands that are part of culture, has been really fantastic. Really, the single biggest thing that I would say has driven this great performance, consistent great performance over several years, has been our approach to looking at the market from a lens of total beverage alcohol. You know, we are a very small player in LAC from a total beverage alcohol perspective.
What the team has been extremely successful in doing is recruiting out of premium beer into premium spirits. That's what has driven the growth in margins, the growth in share, and the consistent growth of our top line. You know, you mentioned stimulus checks. I mean, look, this is growth that the business has delivered, you know, over the last 3+ years, and 3+ years before that. It's anchored in fundamentally good business delivery versus any short-term, you know, tailwinds that may have existed.
Laurence Whyatt (Equity Research Analyst)
That's all super clear. Thank you so much.
Operator (participant)
Thank you. Our final question of today comes from Andrea Pistacchi of Bank of America. Andrea, your line is open. Please go ahead.
Andrea Pistacchi (Senior Analyst)
Yes. Thank you for taking the question. 2 please. Earlier you were talking about the good momentum that you're seeing across the business exiting the half year period. The trends in January were also looking encouraging. You referred to December having been good, I think, in the US More broadly in other regions, what sort of momentum are you seeing as you go into the second half? Everybody thinks about the inflection point, which doesn't seem to have happened yet in Europe. In particular on Europe, where you had another strong half year, how do you see those markets like Ireland, Southern Europe, which continue to be good, but there's a. You have a large on-trade exposure there.
If I may, my second question is just on Cîroc, which you mentioned earlier. Cîroc was down substantially in the half because you said distributors were destocking the brand. I think it knocked about two points off your total US growth. Has this destock been completed? Should we see an improvement already in the second half? Thank you.
Ivan Menezes (CEO)
Sure. I'll deal with the first one and ask Lavanya to comment on Cîroc. We have seen, as we said in my statement, I mean, January has started well pretty much around the world, including Europe, Andrea. I'm really pleased to see the consistency of consumer momentum for our brands and our category continue in Europe. We obviously track it very closely. One of the things we've learned through the COVID years is you've got to be extremely agile, and we have a pulse on the consumer to really see if any shifts happen, we will adjust.
What has been really encouraging, I would say through the last six months of, as I mentioned earlier, in Europe, is we've seen the cocktail culture really thrive and premium brands within that do really well. We expect the momentum to that underlying consumer taste preferences as well as the orientation to socialize and celebrate coming out of COVID, is solid across Europe. I'm feeling good about our ability to deliver a solid second half. Obviously, there's uncertainty out there, but we focus on just making sure we emerge stronger and continue to keep the share momentum there. As I talked about earlier, Guinness is in really healthy shape. Feeling good about the Guinness business in Europe too.
Lavanya Chandrashekar (CFO)
Yeah. On Cîroc, specifically, Andreas, yes, we have seen a slowdown in consumption on Cîroc. Shipments were, you know, lower than depletions on Cîroc, as the slowdown has resulted in distributors and our, as with our sellout culture, wanting to make sure that we have the right levels of inventory, healthy levels of inventory, in trade. In terms of... If I kind of look back at the brand itself, I mean, you know, the brand has performed really well over the last three years. I mean, what you're seeing over here is a bit of an impact on what's happening with multicultural consumers in urban ZIP codes.
It's also, you know, the growth of tequila, the growth of US whiskey. I mean, you know, the, these categories don't. It's not like people are drinking so much more that you're getting that growth of tequila. It's a shift happening, from, you know, one part of spirits to another. I mean, that is a large part of what's contributing to that. Cîroc is impacted by that, to a certain extent. You know,
Ivan Menezes (CEO)
Sure.
Lavanya Chandrashekar (CFO)
Our focus would be to, you know, be where the consumer is with the interest, with whatever the consumer is most interested in. We have a very broad portfolio across price points. We move very quickly to win with the consumer.
Andrea Pistacchi (Senior Analyst)
Very clear. Thank you.
Ivan Menezes (CEO)
Thank you. Is that the last question? Yeah. Okay. Thank you everyone. Really appreciate you taking the time and the questions. Lavanya and I will be out on the roadshow next week. Look forward to meeting with many of you. Thanks very much for your interest in the company and a belated but happy New Year to all.
Operator (participant)
Ladies and gentlemen, this concludes today's call. Thank you for attending. You may now disconnect your lines.