CMD: Management trims near-term margin expectations on persistent inflation & soft macro Regarding the outlook for the group, management has trimmed medium-term EBIT growth from 6-9% to “broadly in-line with” the (unchanged) 5-7% net sales growth it targets, due to the weaker macro more generally (not just in LatAm), inflation (recent oil price move) and the need to invest more in the brands to support their price positioning. However, in the long-term, EBIT is still expected to grow ahead of net sales, as before, and if sales come in at the upper end of the top-line range then the margin will start to drop through faster on operating leverage. Productivity savings were also increased from $1.5bn to $2.0bn. US recovery is underway; plenty of runway left in its biggest market Diageo had been gaining market share in the US for several years, but last year its share was flat and ytd its share is -20bps. However, management sees “some green shoots” in the US regarding holiday spending intentions, albeit Diageo will not pursue low-quality share gains in its aim to grow ahead of the market. Inventories at distributors are at healthy levels and in the on-trade Diageo is already gaining share. Despite being the largest in US spirits, household penetration is only 16% for its biggest brands. Innovation and new market opportunities support growth While there are multiple growth market opportunities for Diageo, we think China and India are the most compelling. International style spirits are still 3% of total beverage alcohol sales in China (5% of group sales), providing room to grow even if the economy slows further. India (11% of group sales) will see 150m new legal drinking age consumers enter the addressable market by 2030. Ready to serve branded cocktails in bottles (Negronis, Cosmopolitans etc.) for at home entertaining occasions are a new category expansion opportunity that cater to socialising and convenience trends. Early learnings from these launches in the US have been very positive, and further launches are planned for the H1 holiday season. In H2 there will be some new RTD launches as well. Zero alcohol provides another incremental growth opportunity. Tanqueray 0.0 is performing well with consumers looking for moderation in Spain and Italy. Interestingly, 80% of the brand’s consumers are new to the gin category and new to the Tanqueray brand. Guinness 0.0 is the fastest growing non-alcoholic brand in the global off-trade and is still available in only 5 markets.