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Diageo (NYSE:DEO)

2014 Earnings Call

July 31, 2014 4:30 am ET

Executives

Ivan M. Menezes - Chief Executive Officer and Executive Director

Deirdre A. Mahlan - Chief Financial Officer and Executive Director

Analysts

Simon Hales - Barclays Capital, Research Division

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

Mitchell Collett - Goldman Sachs Group Inc., Research Division

Melissa Earlam - UBS Investment Bank, Research Division

Chris Pitcher - Redburn Partners LLP, Research Division

Trevor Stirling - Sanford C. Bernstein & Co., LLC., Research Division

Yaser Anwar - Taube Hodson Stonex Partners LLP

Mark D. Swartzberg - Stifel, Nicolaus & Company, Incorporated, Research Division

Andrea Pistacchi - Citigroup Inc, Research Division

Nik Oliver - BofA Merrill Lynch, Research Division

Anthony J. Bucalo - Grupo Santander, Research Division

Christopher Wickham - Oriel Securities Ltd., Research Division

Operator

Ladies and gentlemen, thank you for standing by. Good morning, and welcome to the Diageo Preliminary Results 2014 Analyst Q&A Session. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I am pleased to present Ivan Menezes. Please go ahead.

Ivan M. Menezes

Hello, everyone, and thank you very much for joining the call. Hopefully, you've had a chance to absorb the news on our results that we released today. I am here with Deirdre in London, and the 2 of us are going to be here to handle your questions. So without any further ado, let's get into the questions.

Question-and-Answer Session

Operator

The first question comes from Simon Hales from Barclays.

Simon Hales - Barclays Capital, Research Division

A couple of questions, if I can, please. Firstly, just on emerging market growth in the year, and I know in -- you had a tougher second half of the year. But back at the half year stage, you said that emerging market sales were up a little over 1% for the first half. I wondered if you could give us that number for the full year. And then related to that, clearly, that headline sales numbers impacted by the destocking and the other one-off issues we saw in 2014. What do you think, Ivan, the underlying emerging market depletion or consumer uptake rate was in your markets in the year? And then secondly, just related to that, obviously, the destocking is going to continue, as you've highlighted in Southeast Asia, into 2015. How should we think about the phasing of that? Is that really just an H1 issue? Or do you think it's for the full year we're going to see that impact? And are there any other areas where you are a little bit nervous around stock levels? I'm thinking around places like Russia at the moment and, perhaps, the U.S. against a slowing backdrop there.

Ivan M. Menezes

Sure. Let me start with the overall emerging market situation, Simon. I would -- if you look at what's happening kind of region by region, I would just quickly walk you through it. In Latin America emerging markets, I'm confident we're ending -- as we've gone into the fourth quarter and then -- and start the new year, we're in an improving situation. In Africa, certainly, if you look at our Guinness business, we've had a stronger second half than a first half. And overall beer, as we lap Senator Keg, which will continue to be tough in the first quarter, I expect to get better. And then Asia, if you take aside the impacts of Shui Jing Fang and the destocking in Southeast Asia, actually, our Scotch business there is in good health. So we -- emerging markets are down about minus 2%, and that's true in the second half as well. But if you look under it, by category and by country, I see some good improvement, and I see some things we won't be lapping as we get into next year. Getting into the first quarter of next year, the 2 toughest things we're still lapping in the first quarter are Shui Jing Fang and Senator Keg. Those were still strong first quarters. We also had a strong first quarter in U.S. spirits, which will be much lower since we're lapping a plus 9 in the North American business in the first quarter. If I move to your stocking -- destocking questions, I would say in Latin America, we are close to being done. There's a little more in the free-trade zones, and I would expect to handle that within our first half profile. In Southeast Asia, the momentum of destocking, we still have more to do, as I indicated a few weeks ago, and that will work its way through the year. Clearly, some of Southeast Asia will depend on how -- the pace at which we see a rebound, if any, in markets like Thailand, which are still a little volatile. But overall, I would say a little bit more destocking to go. We know where it is. We've got visibility to it. And Southeast Asia is the most -- the major area where we still have a bit more to go on. The U.S. business, I mean, I'm comfortable that we'll have a solid year in North America. The underlying trends and demographics and health of the business in U.S. spirits is strong. As I mentioned, I think Q1 will be a tough comparison because we were plus 9 last year, and so I expect our Q1 in the U.S. to be slower.

Simon Hales - Barclays Capital, Research Division

But overall, you are happy with stock levels in the U.S. as they are, Ivan.

Ivan M. Menezes

Yes, overall stock levels are more or less where we have them. They move a little bit every year, but they're pretty much where we want them.

Operator

The next question comes from Ian Shackleton from Nomura.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

Three financial questions. The medium-term guidance on margin is for an increase. I don't think that's been quantified. But if we go back to the GBP 80 million of net cost savings, that's quite a big margin increase, 70, 80 bps, if that all flows -- falls through to the bottom line. Perhaps you can comment on that. Second question was around tax rate. Deidre's commentary earlier on seems to suggest 18% okay for this year but with some risk of that trending upwards. And the third question was around interest rate. You're talking about 3.2%, I think, on the embedded debt within Diageo but it was a higher rate in United Spirits. What do we end up with an overall blended rate for FY '15?

Ivan M. Menezes

Shall -- I'll handle the margin question. I'll ask Deirdre to jump in and cover the others. There's a bit of noise on the line. If someone could turn off their mute or turn on their mute button, okay. Ian, on margins, as you rightly point out, we do expect to drive the cost savings, the GBP 80 million, and drop that to the bottom line this year. I mean, on the overall margin, beyond that, I'll just be a little cautious. In particular, if you look at North America, the last 2 years, we've driven over 300 basis points of margin improvement. It's been really very substantial. And as we go into next year, we are going to get more competitive in -- say, with our Smirnoff pricing. In turn, we won't be looking at price increases like we have taken in the last few years. So I would expect the North America margin expansion to reduce substantially as we put more focus on growing share in North America. So we won't have gains there -- I should be more precise, to the same extent that we've had in the last 2 years. So over -- and then there are a few other pockets of the business we do want to invest in. And as we've indicated, after savings, we are going to set aside about GBP 30 million to invest back into the business. I'll ask Deirdre to pick up on the tax rate and interest.

Deirdre A. Mahlan

Ian, on the tax rate, as we've said in the presentation, yes, not only this year, but next year, I still expect the tax rate to be at 18%. The point that I was making in the presentation is that I am conscious of the fact that we are moving in terms of the mix of our markets into a mix that is more heavily weighted now to higher tax jurisdictions. So there will be upward pressure on the rate. And the other point that I wanted to make is we all can be well aware of what's been happening in kind of the global environment around tax. And so more broadly speaking, relative to policy, I'm just alert to the fact that there is more, generally, upward pressure on tax rates than downward pressure, although there is nothing I'm pointing to that would cause me to say it's going to go up. I just think we all ought to be conscious of that environment. In terms of your points on the interest, the blended rate with USL is about 3.5%.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

Sorry, just to be clear, the blend rate including USL was 3.5%, yes?

Deirdre A. Mahlan

Yes.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

And just on the tax, when you talk about this year, next year, are you saying...

Deirdre A. Mahlan

Oh, I'm sorry. I meant, yes, '15, 2015. Sorry, Ian. For the moment, I was still in the prior year. 2014 was 18%. I expect 2015 to be 18%. Sorry, I wasn't clear.

Operator

The next question comes from Mitch Collett from Goldman Sachs.

Mitchell Collett - Goldman Sachs Group Inc., Research Division

Three questions, please. Top line guidance, you've obviously said that things will do a bit better this year or in F '15 than in F '14. At the Investor Conference, you obviously said you expect to be able to do -- I think you defined it as top quartile for consumer companies. Is that still your expectation for this year specifically? I know that guidance is on a medium-term basis. And I guess consensus is just shy of 4%. So perhaps, if you can comment whether you're happy with that. Secondly, I was interested in the move from a free cash flow number to operating cash flow conversion when you've talked about incentivization. Is there anything behind that change? And then thirdly, I just noticed that Johnnie Walker had 6% positive price/mix in North America. In other regions, it's more like 0 to 2%. Is that pricing or mix? Is there a reason for the difference in terms of price/mix performance for Johnnie Walker between the regions?

Ivan M. Menezes

Sure. Mitch, let me take the 3 in turn. As we look at F '15, the way I would characterize F '15 for -- is we would continue the momentum you see in North America. Clearly, if economic and consumer conditions get better, we may do a little better. But I don't see that right now. So I would say it's safe to assume the trends you see this year will continue next year. Western Europe, which has stabilized this year, I would expect stability to continue into next year. I mean, the challenges by no means are over in Western Europe. Southern Europe is still a drag on us, so continuing at about the same level in Western Europe. And then the emerging markets, I mean, we expect improvement, but I don't expect us to bounce back to our historic growth rates of double digits, 10%, 11%, 12%, next -- in fiscal '15. I expect us to be somewhere in between where we are this year and getting back to the full recovery. So in terms of our ambition of being in the top quartile of top line performance, I would expect that to come in, in F '16 and not in F '15. And as you pointed out, I'd say it's a fairly good representation of where consensus is on F '15. On the cash measure that we're changing, this is a very important shift that we're making to really focus our businesses in our markets on driving efficient use of cash and working capital. The root of consumer initiative and the supply-chain changes we are making and improvements we are making, I see a lot of opportunity for improvement here. We are going to measure the businesses very tightly on conversion. My goal is certainly to get to 100% conversion of our profit. And this is a major area of focus that Deirdre and the supply team and the supply directors across our 21 markets are putting into F '15 and beyond. And it's very tied into our route-to-consumer and supply-chain initiatives. So this is within our control, and that's why we want to really incentivize management for it. On Johnnie Walker, you are right. In North America, the growth in Johnnie Walker has been largely due to mix. Our Johnnie Walker Super Deluxe business is up substantially. We've had a terrific run on Blue Labels, Platinum, Gold Reserve, very strong double-digit growth there. And that's what's driven what you see in the leverage on Johnnie Walker in North America. It's predominantly mix. Our total Scotch business in North America was up 14%. So we've got real momentum here, and I'm delighted to also say that now, Buchanan's is the #3 Scotch whisky in the U.S., and I guess you can figure out who it's beaten. So the mix on whisky is continuing to be very positive.

Operator

The next question comes from Melissa Earlam from UBS.

Melissa Earlam - UBS Investment Bank, Research Division

Three questions, please. The first 2 on the U.S. Could you comment a little more specifically on the on-trade trends that you're seeing? Secondly, just a follow-up, Ivan, on the comment you made that you were looking to be more competitive on Smirnoff pricing next year, just to clarify that you mean that you will be holding price rather than being a little more tactical on promotional activity. And then the third question is really in terms of your corporate line. I noticed there's a GBP 19 million benefit in organic EBIT coming through there, and I was just wondering if you could give a little clarity of what exactly that is.

Ivan M. Menezes

Sure. First, on the U.S. on-trade, Melissa, the U.S. on-trade has still not come back. This is the way I would characterize it. If you look at the most recent data, traffic is still very challenged. So you're not getting more Americans going out. The -- what's interesting though is that they're going out on fewer occasions and spending a little more. Now within the segmentation of on-trade, the high-end bar and restaurant business, particularly in the metropolitan areas, continues to be very strong. So this is the classic America consumer story. We're seeing the top end of the business very healthy, very strong. Our reserve brands in the on-trade whisky brands, Bulleit, Johnnie Walker, Don Julio, are all up double digits in the on-trade. But in mainstream America and certainly in casual dining, it is still very challenged. And I would expect, as consumer confidence picks up a bit and you get some of the GDP and consumer spending coming back, I do expect that to improve. But we haven't seen it yet. So I would still characterize the on-trade as challenged. On Smirnoff pricing, you're right. We will not be taking our price as much and in as many places as we normally have. If you look over the last 4 years, we've taken Smirnoff pricing up 2%, 3% a year, and the vodka category hasn't moved. So our relative positioning has got hurt as it's a pretty competitive space. Will we promote more? I mean, I do expect us to be more active to get feature and display in the key channels where premium vodka participates, but we will manage that all in the context of holding up pricing and leverage through the P&L. I still expect us to get about 1 point or north of 1 point of pricing in the U.S. in fiscal '15. Corporate costs, the GBP 19 million reduction in corporate costs is really a cost reduction. We've done a bunch of things to really tighten up our belts. I think you may have heard me on the webcast talk about the examples, and that really has come from our focus on driving out costs in every aspect of the business. It's a lot of little things, but they add up. And we will continue to keep that relentless focus on cost.

Operator

The next question comes from Chris Pitcher from Redburn.

Chris Pitcher - Redburn Partners LLP, Research Division

A couple of questions. Firstly, on the margin outlook, you mentioned of the GBP 110 million, GBP 30 million was going to be reinvested. You said the cost savings would be equally spread by the regions. I was wondering whether that reinvestment is equally spread and whether it includes sort of promotional support or the pricing support that you're talking about for Smirnoff in the United States. And also, I might have missed it, but I don't think I heard an outlook for cost of goods inflation this year. If you could give us that, that would be helpful. And then secondly, a question really on the sort of the culture. You mentioned that 70% of your staff were demonstrating behavior that you think is conducive to achieving your targets. Could you give us a bit more clarity on what's happening with the other 30%, and then, specifically on the executive remuneration, how you feel that you've done versus targets and how you yourselves are aligned to delivering a recovery next year and whether -- within that corporate cost savings, whether that's lower bonus accruals year-on-year?

Ivan M. Menezes

Let me take the last one first. Yes, there is -- obviously, our bonuses are way down this year. So in part in the cost savings, you are seeing lower bonuses. And you will see this in our remuneration report in a couple of weeks. And the exact remuneration, I can assure you, as you would see in few weeks, is tied to demanding targets. And you will see that as well when our rem report comes out. On the investment of the GBP 30 million, it's not price and promotion that we're putting it back into. It will be in route to consumer and in brand support. So that's where it would go. Your question on COGS, there is going to be modest increase. And we've got pretty aggressive productivity programs to offset some of the costs, commodity costs inflation, but I would say you could expect overall -- we haven't given a number deliberately. You could expect modest increase in COGS.

Operator

The next question comes from Trevor Stirling from Sanford Bernstein.

Trevor Stirling - Sanford C. Bernstein & Co., LLC., Research Division

Two questions from my side. Ivan, first one, on the U.S., what happened to your value share in the United States last year? And what do you think you can do to improve that trend in F '15? And the second thing, in Southeast Asia, how exactly did you end up with quite as much stock in Southeast Asia? And what sort of learning do you take away from that to avoid getting into a mess again?

Ivan M. Menezes

Yes, Trevor. U.S. value share, if you take the total U.S. spirits business, which is how we look at it -- so it's not -- it's IRI, NABCA, the open states where you have independents, the on-premise, we would have held value share in the U.S. We did not grow. We held. So I see, going into fiscal '15, this fiscal year, Larry and the team have a very clear focus on growing share. The key brands we need to address are Smirnoff, Captain and Crown Royal. As you know, our reserve business is doing amazingly well. Our whisky business is very strong. These are the 3 focus and priority brands. We are putting a lot of focus not just in marketing, but on-premise execution and distributor focus and incentives around getting execution on these brands right. There's a big turnaround, revitalization initiative on Smirnoff from advertising to packaging, to innovation, to retail execution, to on-premise programming. So that's going to be key. I do want to see us get back into share growth in U.S. spirits. This is the engine of our company, as you know. And this year, we were flat, and that's disappointing. So that will get addressed as we go into fiscal '15. Southeast Asia, I think you raised a very good point, Trevor. And one of the things -- and visibility and the learnings from destocking. I would just point to our route-to-consumer initiative that we're driving across the company. One of the key shifts within that is -- that I talk about -- we all talk about, the preference now is we're driving very much to create a sellout culture, particularly in these emerging markets. I mean, we have that very much in the U.S. and Western Europe. But in the scotch-dependent emerging markets, we want to do that. Where we've got long chains of distribution, like in Southeast Asia and in West LAC, we are increasing the visibility of our sellout and depletion performance. And in fact, in our monthly performance calls with the 21 general managers, one of the changes I have made now is we will be focusing our performance conversation around depletions in these markets and not on shipments and NSV. So it's something now. When you face volatility, as we did, and currencies move around, you are going to get a level of discontinuity. So in scotch-whiskey-dependent, kind of third-party-oriented markets, that will not disappear. So we will always have some degree of volatility, but I expect it to reduce as we take the stock levels down, fully intend not to rebuild them. And we have better visibility, and we have much more rigorous focus in our route-to-consumer work on sellout and execution of sellout.

Operator

[Operator Instructions] The next question comes from Yaser Anwar from THS Partners.

Yaser Anwar - Taube Hodson Stonex Partners LLP

I have 4 quick questions. When will you resolve the UDV issue with EABL? Will you ever consolidate the spirits business in Nigeria? And do you expect to break even with Serengeti and Tanzania this year?

Deirdre A. Mahlan

On the first question, with respect to UDV and EABL, I mean, with respect to all of our businesses, we continually evaluate what is appropriate with respect to that business. I don't think I would call it a resolution of an issue. I think that we'll have to consider, going forward, how best to manage those assets. So if we believe a change is appropriate, then you will hear about it. The second question, can you repeat your second question?

Ivan M. Menezes

Serengeti.

Deirdre A. Mahlan

Oh, about Serengeti. I mean, as you likely know, the operating environment in Serengeti has been challenging. We've taken a number of actions in terms of building capabilities and on our route to consumer. And so I think the performance has been weaker than we expected, although I am pleased to say that it is improving. But I don't know, Ivan, if you...

Ivan M. Menezes

Yes, I would say -- I mean, I'm -- I believe very strongly in the opportunity in Tanzania. As you know, ever since we made the acquisition, we had a series of issues we were working through, and we lost time. But the recent performance is steadily getting better. We've made very strong inroads in getting our sales and route to market set up right. So I am confident that you will see improved performance come through in Serengeti, Yaser.

Yaser Anwar - Taube Hodson Stonex Partners LLP

But not breaking even this year, but probably next year?

Ivan M. Menezes

I would think we'll be close to breakeven next year, yes.

Yaser Anwar - Taube Hodson Stonex Partners LLP

Great. And how are the Senator volumes trending in Kenya, given the excise hikes in October?

Ivan M. Menezes

We took a big hit in Senator Keg. It's cost us GBP 40 million, GBP 50 million this year. We have one more quarter where we will be lapping it, and we are working very hard with the government to get a repeal of the excise duty because, as you know, the unorganized sector has now picked up and that has dangerous health connotations. So -- but we don't have that yet. So the Senator volumes have dropped substantially, and we will have one more quarter to lap Senator in Kenya.

Operator

The next question comes from Mark Swartzberg from Stifel, Nicolaus.

Mark D. Swartzberg - Stifel, Nicolaus & Company, Incorporated, Research Division

A couple of questions on the U.S. business, one, just technical. Did you say price/mix for the total U.S. business, you expect, around 1%? Or was that a vodka comment? And then specifically, as you look at your more downbeat view of the U.S. spirits outlook, is that really a function of how you're thinking about vodka and rum? Or are there other segments? Then finally, if the data shows that the beer category is getting a little better here, you're taking a more downbeat view on spirits, what do you think is causing that contrast?

Ivan M. Menezes

Mark, the first -- the 1 -- the little over 1% I was talking about was pure price, not price/mix. So that's the kind of level of pricing I'd expect in the U.S. in F '15. Actually, your comments on spirits -- maybe I missed something I don't recognize. I am very confident about the underlying trends in -- for the spirits category in the U.S. There is one chart I'd draw everyone's attention to in the presentation I made this morning, which is my favorite chart about the U.S. And what it says is that if you look at young Americans, 21 to 24, and they have -- there are 4.5 Americans turning LDA every year, their propensity for spirits consumption is much higher than prior cohorts. Secondly, if you look at multicultural and if you look at the Hispanic population in particular, their propensity for spirits consumption is higher than the general market. So everything I see on the spirits sustainability is unchanged. I think what you are facing right now is a couple of factors. One is to Melissa's earlier question. I'd say the on-trade is tougher, and we're not seeing the pickup there. But overall, spirits, even in this environment market, is growing 4%. It's not growing 5%. It's growing 4%, but it's certainly taking share away from beer, and I would expect that to continue.

Mark D. Swartzberg - Stifel, Nicolaus & Company, Incorporated, Research Division

And just a follow-up on that -- and maybe this just boils down to comparison, but spirits is decelerating, at least from your perspective, on a total industry basis. Beer is accelerating. So again, it's not like spirits is losing share, but the pace of share-taking is moderating a bit. And I'm just wondering, is that a function of what's going on in vodka? Is it purely comparison? Is it the on-trade dynamic? It just seems like that trend that's been so favorable is starting to reverse a little bit in favor of beer at the expense of spirits.

Ivan M. Menezes

I think it's a good observation, Mark. I would say you look within beer, craft is now -- what, 10% of the market, right. So you've got -- what you've got is dynamic in beer is clearly being favored by what's happening in craft beer and the interest that, that category is provoking; and also, its momentum in the on-premise. That is probably the biggest increasing shift happening in beer. On spirits, I'm not -- if we look at underlying consumer data and what's happening in terms of what people are drinking, the penetration of the various categories -- I know there's a lot written about vodka, the end of vodka. But vodka is still growing 4% in the U.S. I would not write off vodka just because we've had a couple of quarters of slower growth. So I would not say there's a shift in secular trends here in all the underlying data that we look at. The market is slower. And I'd say that the premium and the low brands are more pressured, but that is the consumer economic scenario in the U.S. that's driving that. That's where the pressure is. The premium brands, premium plus and above, in the U.S. is growing. The category is growing at nearly 10%. So the trend to trading up continues very strongly. Whisky, as you know, is very hot. But vodka, too, is driving 1/4 of the growth in the U.S. spirits market. So quarter-to-quarter, there are some shifts. I don't -- we don't believe they point to any structural change in the attractiveness of spirits going forward.

Operator

The next question comes from Andrea Pistacchi from Citigroup.

Andrea Pistacchi - Citigroup Inc, Research Division

I have a couple of general questions on emerging markets, please. The first one is about the sort of medium- and long-term growth there. In the past, you've delivered double-digit sales growth in most years. Now on the one hand, the scale of your business now is a lot greater than it was a number of years ago. But pickup in spirits -- pickup consumption of international spirits is still incredibly low in a lot of places. So do you think, as we come out of this downturn, double-digit growth is still a sustainable number for emerging markets? And the other question is about the pace of recovery in emerging markets. In 2010, I think the EM sales recovery, when it came, was fast and pretty, pretty sharp. You seem to be expecting a more gradual recovery this time despite the fact that you'll be comping a lot of, well, destocking in some markets. So is this more gradual recovery that you're expecting a function of the macro? Or are there any other specific factors?

Ivan M. Menezes

Andrea, on the emerging market, medium- and longer-term growth expectations, I do expect us to get back to solid growth, getting to the double-digit growth, medium term, in emerging markets. Why do I say that? It's your point. The penetration levels of both beer and spirits and the per capita consumption still have a long way to run. Total beverage alcohol in the emerging world per capita runs about half that of the developed world. But then you look at places like Africa, right, where beer is still 1/5 the level of North America per cap. Spirits is 1/10 the level of North America per cap. So that and the demographics with the 1.3 billion emerging middle class coming through, I'd say all those fundamentals are intact. The outlook for growth in beverage alcohol is still robust, and the trading-up phenomenon is still robust. As it relates to the trajectory of coming back, we are still cautious on the macros and the external environment, looking at F '15. And you just need to go around the world, right. You look at Thailand, do we expect a bounce back? No, we don't. The environment is still uncertain. South Africa is tougher. Russia is clearly uncertain. Even places like Mexico and Brazil, there's a lot of uncertainty around -- well, in Brazil, how the elections play out and what happens to GDP growth. Mexico, that's heading in the right direction, but we've got to see it in consumer spending and confidence coming back. So we're cautious in terms of the pace of recovery. We clearly expect a stronger F '15 than we had this year. And I do expect to see improvement in every region, but I don't expect it to come back to double digits in F '15.

Operator

The next question comes from Nik Oliver from Merrill Lynch.

Nik Oliver - BofA Merrill Lynch, Research Division

Just one more follow-up on North America. I think in the past, you talked about a growth model split broadly 1/3 volume, 1/3 price, 1/3 mix. Does that still hold as an ultimate aim? Or given strong growth in premium, are you more agnostic if we see more growth coming from price/mix over the medium term? And just one on the FX guidance, about GBP 160 million hit, could you split that out between transactional and translational? And just remind us how you hedge your transaction exposure and over what period.

Ivan M. Menezes

Nik, on North America, I do want to see more volumes come through. And this gets back to our premium core brands have to perform better, Smirnoff, Captain, Crown Royal in particular. So the right algorithm and ambition still is to get to 1/3, 1/3, 1/3 as we are more tilted towards price and mix in the last few years, and we have pretty clear strategies now to ensure we get better volume performance. I don't expect it to come through immediately, but I think sequentially, you will see us get improvement in our volume performance in North America. On FX, I'll ask Deirdre to...

Deirdre A. Mahlan

On FX, translation is about GBP 90 million, the rest is transaction.

Nik Oliver - BofA Merrill Lynch, Research Division

And just on the hedging of that transactional, is that sort of rolling 12 months, just to think about how the impact drops through going forward?

Deirdre A. Mahlan

Well, we currently have -- for example, it varies from currency to currency. We currently are about 65% hedged for this fiscal year. We hedge anywhere from [indiscernible] to 18 months, but it's about 65% hedged.

Operator

The next question comes from Anthony Bucalo from Santander.

Anthony J. Bucalo - Grupo Santander, Research Division

Two quick questions. One on whisky, specifically the Irish whisky portfolio or the key brand you have there, and your bourbon brand, Bulleit. Do -- you've got 2 of the hottest categories in global spirits right now. Do you think you're getting enough out of your Irish whisky brand just in terms of the rate of growth? And the Bulleit pricing didn't look particularly aggressive but on a very robust volume base. Do you think there is some room there to take some extra pricing as that brand strength seems to be very high? And then the second question is -- or I guess the third question is on how are we thinking about Shui Jing Fang now. It appears to be, I guess, broken from the outside. Is that a fair way of looking at it? Or is this just going through a rebase and we expect things to get better as we go forward?

Ivan M. Menezes

Great question, Anthony. On whisky, I would say that -- first on Bulleit. Bulleit is -- as you know, is the fastest-growing bourbon right now. It's doing extraordinary well. What you see in the price/mix is more a function of us building it globally. I'd say the pricing power and strength in Bulleit is strong. And you'll see us continue to take that in the U.S. Irish whisky, when you look at our performance on Bushmills, it has -- it is mix. In the U.S., it's not doing well. And I would say our main competitor there has really transcended the Irish category. We have tried hard over the years to get this brand into growth, and we've struggled. So it's -- in the U.S. market, it's not performing well. We've got a little better growth in pockets of Eastern Europe and Russia. But Bushmills, overall, as you've seen in our numbers, was up about 7%. On Shui Jing Fang, we have -- in fact, Deidre and I, just yesterday, reviewed the business with the China leadership again. Just to keep in context, the baijiu category is still very healthy and very profitable. What has been hit has been a piece of the super premium consumption that was oriented towards gifting and government entertaining, which is a small segment of the total market. What we have at Shui Jing Fang is a very contemporary modern brand, and what we are focused on is building this brand for private consumption back up again. We picked 6 regions in China. We are innovating. We are extending the price points now to RMB 400 to RMB 500, taking it down. It's still GBP 40 to GBP 50 for a 50 cl bottle. And I am confident, off this base, we will -- you will see us build an attractive business again. This participation is strategically very important for us because it gives us access to the with-meal occasion in China, which is the predominant consumption occasion for alcohol. So I see strength in the route to market emerge. We are now, in parts of Southern China, looking at consolidating our route to market with the other China brands and Shui Jing Fang, and that should give us the benefit. As we look at launching Haig Club in China, that, too, is going to go after the with-meal occasion. So overall, I expect recovery in Shui Jing Fang. And I'd say it's still strategically a very important piece of our overall China strategy.

Anthony J. Bucalo - Grupo Santander, Research Division

Okay. So no expectation of any more shoes dropping on this asset anytime soon?

Ivan M. Menezes

I would hope not. It's not much further to go.

Operator

The next question comes from Chris Wickham from Oriel Securities.

Christopher Wickham - Oriel Securities Ltd., Research Division

Just a couple of questions. I was wondering, given where we are, I mean, you've talked a lot about, sort of, Benelux. You've talked a lot about some of your brands that have done so very well in Northern Europe and in Scandinavia. I mean, we get that sense, obviously, that in Southern Europe, it's flattening. I was just wondering why you can't be a little bit more upbeat about Western Europe going into F '15. And particularly, you've clearly promoted your leader there, you think he's done a good job and you're giving him an enlarged bailiwick? And the second thing, and sort of which closely relates to that, I was just wondering what you can say that's positive about the Guinness brand, in particular, going into F '15. I mean, what sort of changes we should expect to see and what kind of performance.

Ivan M. Menezes

Great. On your first question, my expectation of John Kennedy is exactly as you laid it out to me. So I am expecting bigger things out of him. But I'd just be cautious about the external environment on Europe because -- and that's why we're saying, holding to stable. We certainly, internally, would like to do better, but it will depend, in part, on the external environment. What I would say about Western Europe is, they're growing market share now. And this is a mix shift from where we've been over a few years. We are -- in the spirits market, we're up 0.4 percentage point of market share. And I just want to keep that momentum going with innovation, reserve and our route to consumer. We're significantly expanding sales forces across Western Europe. This is one of John's big initiatives. So you're right to expect better performance. We have been cautious about the environment. On Guinness -- yes, on Guinness, I would say I am feeling confident about far better programming and focus behind the brand going into fiscal '15. If you just look at Africa in -- even in the second half, we've got better performance on Guinness. In the first half, the brand was down 2% in NSV terms. In the second half, it was up 3%. We have done quite a major revitalization on packaging, advertising and our route-to-consumer chain. So I'm feeling good about Guinness in Africa going into fiscal '15. And we actually have a very exciting new campaign breaking in a few weeks, which you will see growing across Africa. In GB Island and the U.S., the equity scores are improving, but they haven't yet converted into accelerated volume momentum. I think we feel confident we will see better performance in these markets in F '15 than in F '14. So overall, on Guinness, I think you should expect us to do better in fiscal '15 compared to F '14.

Operator

As there are no further questions, I will return the conference to Ivan Menezes. Please go ahead, sir.

Ivan M. Menezes

Great. Well, thanks, everyone, for joining the call. And Deidre and I look forward to meeting up with you over the next few months. And all of you enjoy a great summer, and all the best from us at Diageo. Thank you.

Operator

This does conclude our conference call for today. Thank you all for participating. You may now disconnect your lines.

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