Faster trajectory expected, underpinned by category growth and share gains Diageo’s Capital Markets Day revealed an optimistic outlook for the future. The company plans to significantly grow its share of the global Alcohol market from 4% in 2020 to 6% by 2030, augmenting the underlying growth of the category (which management thinks could grow 3-4% over that period). Household penetration of Spirits in Diageo’s largest market, the US, is still only at 50%; in China the penetration of Western Style Spirits is still extremely low at around 3%. Over half of the growth in the US Spirits category over the next 5 years will come from tequila. As reported earlier in the day, Diageo management now targets 5-7% organic net sales growth and 6-9% organic EBIT growth over the FY23-25 period, implying modest upgrades to consensus. A chart overleaf shows this growth rate is realistic. Reliance on tools, productivity to drive margin expansion The margin expansion over FY23-25 will be enabled by £1.2bn of gross COGS, marketing and overhead efficiencies. Management spent a lot of time discussing its marketing strategies and tools, which have been the subject of much investment in recent years. The Catalyst marketing efficiency tool has delivered an impressive £400m of incremental gross profit since 2017, and allowed the company to stay nimble with its marketing during the Covid-19 crisis. In Colombia, the EDGE execution tool has resulted in a 35% uplift in sell-out at the outlets where it has been implemented. Diageo also recently opened a customer collaboration centre outside of New York City. Other opportunities Regarding M&A, the company has made 12 brand acquisitions in recent months, and will continue to look for attractive bolt-ons. A strategic review of the domestic Indian whisky portfolio is currently underway, which could result in some disposals. Management does not assume any change in Indian Scotch tariffs in its medium term guidance.