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Earnings Call: H2 2018

Jul 26, 2018

Speaker 1

Good morning, everyone. I'm pleased to share another strong set of results today. Let me start by thanking all of the Arjo's 30,000 employees for their contribution to progress demonstrate that we are a stronger company that's advancing towards our ambition to be one of the best performing most trusted and respected consumer product companies in the world. We are more consumer centric, more efficient and more agile, executing effectively against our 6 priorities. We're better positioned to take advantage of the natural tailwinds in our industry with favorable demographic dynamics in emerging markets and premiumization trends across spirits and premium beer categories.

Kathy will share with you the details of our progress on efficient growth and value creation, but let me start by taking you through some highlights first. Organic net sales grew 5% driven by volume growth and strong pricemix with broad based growth across categories and regions including our 3 focus areas. Organic operating margin expanded by 78 basis points with our productivity work enabling and up weight in marketing investment as well as delivering margin expansion. We delivered another year of strong free cash flow broadly consistent with last year. EPS pre exceptionals is up 9.3% primarily driven by organic growth.

We returned billion to shareholders in fiscal 2018 through a share buyback. Our strong cash flow delivery has enabled us to announce today a share buyback program of up to 1000000000 for fiscal 2019. We also announced an increase in our final dividend of most trusted and respected consumer product companies in the world. To deliver this, we set out a clear strategy to deliver consistent, efficient growth and value creation, as well as drive significant cultural change. We've made significant progress towards our ambition.

These results demonstrate another year of strong consistent performance across the business with top line growth of 5%, a 2nd year firmly in our guidance range. We remain focused on margins and our reported operating margin before exceptionals at 31.4% this year is top quartile in our peer set. We've created a more agile consumer centric organization that acts with greater pace and efficiency. This has been enabled by our productivity agenda. This focus on everyday efficiency has delivered 115 basis points of margin expansion over fiscal 20172018, and we're on track to meet our goal of 175 basis points over the 3 years fiscal 'seventeen to fiscal 'nineteen.

Importantly, we are also creating fuel for growth, upgrading our A and P spend by 27 basis points as a percentage of net sales this year, and and are now in our to maximize value for shareholders. With the right talent capabilities and tools to continue to grow our business. We also actively review our portfolio disposing of noncore assets over recent years, as well as looking for potential bolt on acquisition opportunities. In this fiscal year, we completed the acquisition of Casa Migos, the fastest growing super premium tequila brand in the US. We also announced the acquisition of Ultra Premium Mescal Pierre De Almas and Premium Appetitive Belsazar.

And in distill ventures, we continue to work with many businesses in their early stages of development. Most recently, we've launched a partial tender offer to potentially increase our stake in Schwaging Fang from just under 40% up to a maximum of 60%, which will increase our exposure to the exciting premium by June segment. The business continues to generate significant amounts of cash. This year, we've returned over billion of cash to shareholders. We have again increased our dividend by 5%.

And today, we've announced that we will return up to 1,000,000,000 of capital to shareholders in fiscal 2019 through a new share buyback program in addition to the 1,000,000,000 we returned in fiscal 2018. Over the last year, we have increased our total shareholder return by 23% which builds on 2 prior years of double digit growth. The actions we have taken means the Ajo continues to strengthen. We are delivering strong results but there is still more to do. The journey to create the opportunities to drive growth and value for our shareholders will continue.

Over the last year, we delivered another set of strong results demonstrating the effective execution of our strategy. It's another year of top line growth within our medium term mid single digit growth target range and we're on track to deliver our organic operating margin commitment of 175 basis points over the 3 years fiscal 'seventeen to fiscal 'nineteen. While there's more to do, the performance we've delivered gives me confidence in the resilience and predictability we're building into this business. Let me now hand over to Kathy to talk about these results in some more detail.

Speaker 2

Thank you Ivan, and good morning, everyone. In the 2nd year of our medium term guidance, we have delivered another consistent strong set of results against the KPIs we use to measure efficient growth and value creation. Organic net sales grew 5%, underpinned by 2.5% volume growth and 2.5% positive pricemix. Organic operating margin increased 78 basis points, slightly ahead of expectations as a result of accelerated productivity savings and overheads and lower related costs. At 1,000,000,000, free cash flow continued to be strong, and broadly in line with last year.

Pre exceptional EPS grew 9.3% to 118.6p, mainly driven by organic operating profit growth and lower finance charges. Return on invested capital improved 48 basis points to 14 point 3% and it's now at its highest level in 4 years. And finally, we delivered total shareholder return that is top core relative to our peer group. It was up 23% in the 12 months to June, 3rd year in a row of double digit growth. These are a strong set of results, which further demonstrate our ability to consistently deliver efficient growth and value creation and meet our medium term guidance.

Let's go ahead and dive into it. Reported net sales were up about 1% as organic growth more than off set the significant impact from unfavorable foreign exchange. Organic net sales grew 5%, driven by 2.5% volume growth and 2.5% positive pricemix. Growth was broad based across all regions, delivering both organic volume and net sales growth. Volume growth accelerated, largely driven by IMFL whiskies, Scotch and gin.

Pricing contribution continued to be muted and mix was impacted by the stronger growth of IMF L whiskies in Diageo India. Net sales growth continued to be broad based, not only across our regions, but also across our categories with the exception of vodka. Scotch is our largest category, and net sales were up 2%, driven by growth in North America, Black, and Asia Pacific. This was partially offset by a net sales decline in Europe and Turkey due to weakness of JNB in Spain and in Africa, partially as a result of challenges within our 3rd party distribution network and economic uncertainty in Cameroon. And weakness in South Africa where competitive pressure impacted our primary scotch brands.

Johnny Walker delivered a good performance with net sales up 5%, largely driven by Johnny Walker Black Label And Blue Label. Net sales growth across our primary scotch brands was also good, up 7% with a strong performance in LAC where we saw double digit growth. Elsewhere, Windsor Net Sales continued to decline in South Korea amidst category decline and consumers moving away from traditional tempo on trade occasions. Performance in old par, although improving in the second half, continue to be impacted by the tax changes in Colombia. In vodka, net sales were down 1%, an improvement versus last year as performance in both Ketel 1 vodka and Sarak vodka improved.

But was partially offset by a weaker performance in Smirnoff. Outside North America, vodka net sales increased 2%. Canadian Whiskey net sales were up 2%, driven by Crown Royal, which delivered 3% net sales growth in U. S. Spirits, its biggest market, gaining share in the category.

Net sales grew in both Crown Royal Deluxe and Regal Apple but overall growth slowed down as the brand lapped last year's launch of the vanilla variant. Was driven by Bulleit with net sales up 10% in the U. S. Rum net sales grew 1%. In U.

S. Spirits, Captain Morgan net sales declined, as the brand lapped a strong comparable in the previous year, but it continued to gain share in the Rome category. Captain Morgan performance outside North America was strong, with net sales up 9%. In Liqueurs, net sales increased 6%, as Bailey's delivered a solid performance in its 2 biggest markets: U. S.

Spirits and Europe as a result of increased and more effective activation, as well as successful innovations. Net sales in IMF Whiskey were up 8% driven by our prestige and above brands that were up 12%. Performance in our business in India improved in the second half, as headwinds such as the highway band are now behind us and the business lacked a soft comparable. Genet sales were up 16% and in growth in every region. In Europe, our biggest market, Gordons and Tangerine sales were both up strong double digit and gained share in the category.

In tequila, net sales increased 40%, as Don Julio continued to deliver strong double digit growth and share gains in both U. S. Spirits and Mexico. Beer is our 2nd largest category, and net sales increased 4%, mainly driven by Guinness, which delivered 5% net sales growth. Elsewhere, strong performance of Saraganaguelite in Tanzania and Dubeck Malta in Nigeria were partially offset by weakness in Senator, which was impacted by the political uncertainty in Kenya Global Giants were up 4% with all brands in growth with the exception of Smirnoff, which was impacted by weakness in the U.

S. And Europe, as well as competitive pressure in South Africa. Net sales of local stars increased 6% mainly driven by strong growth in Chinese white spirits, IMF Whiskey and Crown Royal, partially offset by declines of Windsor and South Korea, Old Par in Columbia and JNB in Spain. In Reserve, net sales were up 14%. Largely driven by strong performance in Chinese white spirits, Don Julio, and Johnny Walker Blue Label.

Reported operating profit before exceptional items was up just over 6% with organic growth slightly offset by unfavorable exchange. Reported operating margin, excluding exceptional items, increased 151 basis points, driven mainly by organic operating margin improvements and a favorable impact from exchange, given the lower relative negative impact of exchange on operating profit versus net sales due to our hedging program, which delays the timing of some of the exchange impact on operating profit. Organic margin expanded 78 basis points. This was slightly ahead of expectations, as lower than expected productivity program related costs and accelerated productivity savings and overheads more than offset the decline in gross margin and the impact from increased marketing spend. Our productivity initiatives more than offset inflation on cost of goods sold However, gross margin declined 43 basis points, mainly due to negative mix, the impact of the hurricane remediation costs in the U.

S. Virgin Islands, and increased logistics costs in the U. S. Our productivity program provides the firepower to invest in future growth. This year, our marketing spend was up 7% in the full year, ahead of net sales growth driving a 27 basis points higher investment rate.

As expected, we increased investment behind U. S. Spirits and scotch as well as in India and in attractive growing categories such as gin in Europe, and Chinese white spirits. In addition, productivity initiatives delivered marketing savings in excess of 1,000,000 in fiscal 2018. Largely as a result of media savings, more efficient use and sourcing of point of sales material, and agency consolidation.

Other operating items delivered 148 basis points of margin improvements, largely driven by productivity initiatives and overheads. Overheads as a percentage of net sales decreased 110 basis points as we continued to move towards a leaner and more agile organization by broadening spans of control and eliminating unnecessary management layers. The continued use of 0 based budgeting methodology on indirect costs the adoption of tools and simplified ways of working are also driving efficiencies. Activity program is the key enabler behind our ability to deliver organic margin expansion and increase our investment in the business to fuel future growth. Culturally and operationally, productivity in Diageo means simplifying our business to enable us to deliver more with less, I'm pleased with the progress made so far across all work streams.

I briefly touched on how Sage from global supply, organizational effectiveness, and indirect costs have contributed to deliver 78 basis points of margin expansion this year. And how we're getting more efficient and effective at managing our marketing spend. So let me spend a minute on the work stream I haven't mentioned yet, net revenue management. NRM is an area where we've built a solid foundation that should begin to yield stronger performance. We have made good progress We've continued to recruit people with strong NRM experience in many of our markets, including our new global head of NRM, and we are investing in our center of excellence to deliver effective insights in a cost efficient way.

We're also rolling out tools that are fit for purpose for our markets, taking in consideration their route to market complexity and the size of the opportunity at hand. In markets like Europe and U. S, we are rolling out Polaris, a comprehensive system that allows real time simulation on pricing elasticity promotional valuation, trade spend, and customer profitability. In other markets, we're deploying simpler Excel based tools that are more bespoke to to be implemented initially spend allocation across brands, outlets and channels. That gave us rich information on our biggest areas of opportunity.

With this information in hand, the team undertook a large scale capability building program, with more than 100 team leaders, covering new ways of working Nrm Tools and dashboards. These workshops were then cascaded to the sales teams. Early results have been encouraging with pilot clusters delivering volume growth and gross margin expansion ahead of other clusters. Overall, we've made good progress in laying the foundations in NRM. And while there's more to do, we expect to gain momentum as we continue to build stronger capabilities across the business.

2 years in productivity is embedded as business as usual. This gives me confidence we're behind our brands. Now let's move on to cash and working capital. Free cash flow continued to be strong at two 500,000,000 pounds and broadly in line with last year. Operating profit growth was offset by increased investment in maturing stock and CapEx Negative exchange and lower operating working capital improvements year on year.

Operating working capital improved in fiscal 'eighteen but the benefits on free cash flow were lower than in the prior year. I'm pleased with the results of our everyday focus on working capital management, with our average working capital conversion sustained above 100%. Net CapEx was 1,000,000, in line with our guidance and higher d to £700,000,000 as we use investment in Scotland to transform our scotch whiskey visitor experience and continue to expand capacity in emerging markets. Tax payments were 1,000,000 higher year over year, largely driven by the payment made to HMRC last August, which was partially offset by the benefit from the headline tax reduction in the US. Interest payments were lower than last year as a result by approximately £300,000,000 as the results of the execution of our share buyback program and the closing of the Casa Amigos acquisition in August 2017.

Our effective interest rate was 2.6%, ninety basis points lower than last year, As we benefited from an efficient debt refinancing in the first half, higher use of commercial paper, and higher than expected gains on our swap portfolio. For the next year, I expect our effective interest Other finance charges were £16,000,000 lower than last year, in part due to lower pension charges, as a result of a lower pension deficit. In fiscal 2019, I expect other finance charges to increase and in aggregate to be broadly in line with fiscal 'seventeen, largely due to a higher charge in respect of the Zacapa put option. We have a transparent and disciplined approach at net debt to EBITDA ratio of 2.5 to 3 times. Our priority remains to invest in the business.

In the last few years, we've also proactively managed our portfolio and disposed of noncore strategic assets such as our wine business in the UK and U S and the Glen Eagles Resort. We also look at opportunities to strengthen our portfolio with potential bolt on acquisitions. As you know, we completed the acquisition of Casa Amigos last August, which increased our participation into a partial tender offer for Shui Jing Fang, with the aim to increase our shareholding from approximately 40% up to 60%. We have a clear dividend policy. This year, we announced a final dividend of 40.4p per share, which brings the full year dividend We target dividend cover between 1.82.2 times, and we finished the year at 1.8 times, just into our policy range.

I expect to maintain In February, we completed the 1.5000000000 share buyback program that we announced a year ago. We remain committed to our disciplined approach to capital structure. We ended fiscal 2018 with an adjusted net debt to EBITDA ratio of 2.2 times. And as you've heard from Ivan in fiscal 'nineteen, we will return up to £2,000,000,000 of capital through a new share buyback program. We expect to Exchange rates negatively impacted net sales and operating profit by 1,000,000 £456,000,000, respectively, broadly in line with our guidance.

The negative impact was mainly due to the weakening of the US dollar and Turkish lira, and other emerging market currencies only partially offset by the strengthening of the euro. As I look at next year, using the rates presented here, exchange is expected to adversely Earnings per share before exceptional items increased 9.3 expense was more than offset by organic operating profit growth and lower finance charges. Our tax rate before exceptional items was 7%. Our current expectation is that our tax rate before exceptional items for fiscal 2019 will be in a range between 21% 22%, which reflects changing business mix and the level of uncertainty in the current tax environment for most multinationals. As I mentioned earlier, finance charges were lower than last year and had a positive impact on EPS.

The execution of the 1,500,000,000 com share buyback program, which we announced last year, reduced our weighted average number of shares and was the main contributor behind the positive impact shown in the other category tax credit due to the balance sheet remeasurement of our deferred tax liabilities in the U. S, reflecting the headline rate reduction. Partially offset by the tax charge related So we have delivered another set of strong results with mid single digit top line growth, up weighted A and P investment, and expanded operating margins. We have consistent strong cash flow delivery and returned over £3,000,000,000 in cash to shareholders through dividends and our share buyback program in fiscal 'eighteen. Total shareholder returned increased 23%.

Across the board a good year. Looking ahead to fiscal 'nineteen, I expect net sales growth to be broadly in line with this year. Our productivity program will enable us to deliver while continuing to increase our marketing investment, up waiting spend behind our focus areas of U. S. Spirits and scotch, while absorbing anticipated mixed headwinds from fast growth in markets with lower margins.

And with that, I'll hand it back to Ivan.

Speaker 1

Thank you, Kathy. Kathy shared the results on the first two measures that tracked the progress against our performance ambition. Efficient growth and value creation. Let me share with you now the progress we've made in fiscal 'eighteen to become one of the most trusted and respected consumer product companies in the world. At our first half results, I shared with you our new targets to promote a positive role for Alcohol And Society.

We aim to reinforce moderation, and we target specific issues to change behavior and reduce harm. We want to persuade In fiscal 'eighteen, we focused our work to concentrate on those programs that deliver the biggest impact specifically targeting drink driving, underaged drinking and excessive drinking. We delivered 225 programs across more than 50 countries, smashed our flagship youth theater production reached 15 Countries and our partnership with the unita the United Nations Institute for Training And Research promoted road safety across 30 eight countries. We have now also trained over 1,000,000 adults as responsible drinking ambassadors. And I'm particularly proud that we've begun to mobilize all Diageo employees as responsible drinking ambassadors through our new drink positive employee engagement program.

There is, of course, more to do, and we will continue to monitor progress through fiscal 'nineteen towards our new 2025 targets. To educate 5,000,000 young people, parents, and teachers about the dangers of underage drinking, to collect 50,000,000 pledges to never drink and drive and to reach 200,000,000 people with moderation messages from our brands. A company that wants to be truly sustainable must strive to have a positive on employee safety in our operations continues to improve. While progress on our carbon and water efficiency slowed somewhat this year, we've made significant moves towards our 2020 targets and have now delivered more than a 40% improvement versus our baseline. We remain committed to our 2020 goals and have plans in place to support the delivery of them.

Finally, on our commitment to the environment, we've had packaging targets for nearly a decade, leading to our current position of less than 5% of our packaging being plastic. We announced new 2025 plastic targets in June 2018, recognizing public concern and building on our ban of plastic straws in December 2017. Employee engagement is a key metric given the strong relationship between engaged and empowered employees and performance. Our fiscal 'eighteen annual employee value survey results show employees continue to feel very connected to Diageo. The progress we're making demonstrates our commitment to become one of the most trusted and respected consumer product companies in the world.

Our 6 priorities underpin the delivery of our strategy, disciplined execution of our 6 priorities across the business, has enabled the delivery of consistent results. Today, I'll focus on sharing some examples of strong execution on 3 of these priorities. Our premium core and reserve brands and how we're driving innovation at scale. Beer net sales grew 4% accelerating versus fiscal 2017 with Guinness, our flagship beer brand, growing 5%. Our Guinness growth drivers are working with significant contributions to overall growth coming from Guinness, both in Africa and in Europe.

In Europe, Guinness performance is strong, up 6% with growth expanded the Guinness portfolio with beers from the Opengate brewery like Citra IPA and Pilsner that launched in March. The success of Hophouse 13 Lager continues with the brand growing at the fastest rate of any of the top 25 beers in GB. In Ireland, it now ranks within the top 10 beers and continues to grow up double digit in the last fiscal year. The brand goes from strength to strength. It's now one of our most successful innovations in Europe, most recently launching in several Continental Europe markets, and we have also now launched in Australia and Kenya.

Finally, in the U. S, the official opening of our Open Gate Brewery in Maryland to the public is expected in August this year, Increasingly, consumers are looking to build a more personal connection to brands they admire, and our new brewery will offer that opportunity to deliver a great consumer experience, as well as Moving over to Africa, beer net sales were up 5% and Guinness was up 7%. With Guinness, we continue to leverage our pan African football sponsorship of the English Premier League and engage with consumers through promotions. In Nigeria, Guinness gained market share over the past year. In Ghana, we've had a 2nd year of activating Guinness alongside Ghana Independence Day with a limited edition bottle, giving consumers a chance to win a plot of land.

This has driven high engagement with over 9,000,000 entries to the national consumer promotion. Now let's talk about gin, the gin category has been experiencing strong expansion, growing value 13.5% in 2017, in IWSR and Tanqueray has been a significant driving force behind this growth. Geographically, Europe accounted for over 60% of total category growth. However, we saw double digit growth in other markets too, such as Brazil, Mexico, South Africa, and Australia. Tanqueray continues to be the bartender's Gin of choice.

And has been experiencing strong growth 17, we continue to drive success through execution of 4 simple priorities. Driving awareness with the campaign focused on highlighting in the brand to support liquid experiences in the on trade and third spaces with tanker and tonic serves being activated in all priority markets, We're scaling up Tanqueray FLOWDY Sabia, which launched in fiscal 'eighteen, to tap into the consumer interest engine with alternative flavor profiles in a beautifully sophisticated way. And we aim to continue grow share for Super Premium segment with Tank Ray number 10. We continue to deliver strong growth in our reserve portfolio. Let me share with you examples of what we're doing in Baidu and tequila.

We are the only international spirits company with the meaning presence in Bijou, and the category is back in double digit growth after slowing down during the anti extravagance campaign. This is being driven by a strong premiumization trend with the fastest growth in the premium segment, which is Shradingfang's heartland. Since the anti extravagance measures, we've repositioned our portfolio, brought in a new leadership team and set out the strategy to grow this business. We grew net sales 65% in fiscal 2017 63% in fiscal 2018. And this has been achieved through consistent execution against our enablers.

We are building a contemporary brand expression of craftsmanship and heritage, which is key to enhancing the brand's appeal in the premium segment. We've successfully deployed and are continuing to evolve our industry leading approach to route to consumer, focusing on must win battlegrounds and expanding distribution in a deliberate and targeted way. A couple of years ago, this approach was focused on the 5 most important provinces: soon after expanding to a further 5 and now over the last year to a 3rd tier of 5. We've expanded the portfolio through innovation with more premium Shraging Fang variants and other tactical innovations built around the core brands to help re recruit consumers. Finally, we're investing ahead in the brand to give this relatively small national Baidu brand, the share of voice required to drive awareness and continued growth in this exciting category Another part of the business that really excites me is super premium tequila.

Don Julio continues to experience strong growth and share gains in both the U. S. And Mexico as we execute against its growth drivers. In the U. S, we're driving category share gains by engaging with consumers through experiential sampling, mentoring events and using assets like the Don Julio 19 42 era trucks.

We are also communicating with consumers on social media with the use of influencers to continue to build down Julio's positioning as the ultimate choice in super premium plus tequila. In Mexico, the tequila category is growing value at around 14%, driven by premiumization and now represents over a third of total spirits. Don Julio is growing share within the category with strong double digit growth. And we further strengthened our position in the super premium tequila segment with the acquisition of Casamigos which continues SES with our expanded participation in the super premium tequila segment. We think about the role of innovation to either recruit, re recruit or disrupt.

All of these being grounded in consumer insights. Gordon's Premium Pink Gin has been the standout launch in Europe in fiscal 'eighteen. In our GB business, it has become the number one spirits innovation in the last decade, and it's proving to be highly effective at recruiting new consumers into the Gordon's trademark. This success is testament to the improved pace and agility we now see across the Arjo. This product was launched in Iberia in summer 2017, And very quickly afterwards, the decision was made to launch in GB.

Only 10 weeks later, it was on the shelves. A process that would have taken significantly longer in the past. Staying with gin, we're recruiting more consumers into Tanqueray with the fantastic new product I mentioned earlier. Tankray floored the severe based on tanker aging infused with delicate notes of blood orange, including bitters for a more mature and sophisticated taste. Bailies has some exciting innovations focused on bringing new consumers to the brand through Bailies Armand, dairy free and vegan alternative, as well as reminding consumers about Bailey's all year round with Bailey's strawberries and cream, which celebrates the changing of seasons.

The limited time offer, Sarac summer collider, brings the taste of summer to Sarac and is now in its 2nd year in both the U. S. And Europe with this year expected to be even bigger than its launch year. When it comes to brands that disrupt, I have 2 exciting examples. In May this year, we launched Ketel 1 Botanicals, which we believe appeals to consumers who are looking for natural ingredients as well as a lighter calorie offering.

Served with soda, it has just seventy 3 calories infused with the finest fruits and botanicals, with lower ABB at 30%, made from non GMO grain and gluten free, we have 3 variants that are an exciting addition to the Ketel 1 brand. Then we come to Guinness Pure Brew from the Opengate Brewery. This is a new ultralow alcohol beer that's produced using a new unique fermentation process, which produces a fully brewed beer at strength of 0.5 percent ABB. The result, a great tasting lager that entastes has 7 out of 10 consumers not recognizing it as a low alcohol beer. Let me now share with you the progress we have made on our 3 focus areas: Scotch, U.

S. Spirits and India. We continue to focus on improving our overall Scotch performance and delivered solid growth in the year with net sales up 2%. Momentum on Johnny Walker continued growing 5% with strong growth in all regions except Africa. Johnny Walker Black Label grew 9% as we focused on painting the world Johnny Walker Black.

Johnny Walker Blue Label delivered strong performance with double digit growth. Buchanan's net sales were down 2% over the year as it lapped a strong year in fiscal 'seventeen. However, sellout performance was stronger in the second half in its biggest market, the U. S. Where it gained category share, while performance was soft in Mexico due to price increases.

Scotch Moulds underperformed in fiscal 'eighteen. We saw strong growth in some markets like GB and Mainland China, However, we saw weakness in Taiwan arising from commercial challenges and category contraction faced in that market. Primary scotch momentum continued with strong growth in Black and white in Mexico and Brazil. Black Dog, our primary scotch in India was up 9%. Other Scotch performance softened versus last year as all part declined due to the recent tax increase in Colombia and JNB was down along with the scotch category in Iberia.

We also saw continued decline on Windsor due to the contraction of the scotch category in Korea with a partial offset from growth from non scotch variance from Windsor, although not within the category. I'm pleased with the performance in Johnnie Walker that we see further room for improvement in scotch. To deliver consistent growth and gainshare, we continue to evolve our Johnny Walker strategy, starting with our vision to become the most desired enjoyed and talked about whiskey. Smalls is for it to be enjoyed in the moments that matter with the people that matter the most. We continue to remind consumers to make special moments in their life with Johnny Walker Blue Label.

We launched the new Blue Label ghost and rare limited edition series which contain whiskeys from precious costs from ghost distilleries, iconic stills that have ceased production. We continue to put liquid on licks at mentoring events and in the on premise educating consumers on the heritage craftsmanship and taste of Johnny Walker variance and their versatility in mixed drinks. We've just launched a new global partnership with IMG culinary and their taste festivals. Food and drink are one of the biggest on trend consumer passion points and taste allows us to showcase our brands with great serves and great experiences. And we have a holistic influencer program across media, bartenders, as well as consumer influences to support us to achieve our vision for Johnny Walker.

Now just before I move on from Scotch, I'd also like to mention the significant investment we are making in our Scotch distilleries over the coming years. We recently announced a 3 year 1,000,000 investment program to transform our Scotch whisky visitor experiences which will include a state of the art Johnny Walker, immersive visitor experience in Edinburgh. In 2017, the number of tourists visiting the Aja's 12 Distillery Visitor Centers across Scotland reached a record high of 440,000, an increase of over 15% on the previous year and the highest figure reported to date as whiskey distilleries become a spirited addition to visitors' itineraries. Our investment will further enhance our visitors' experiences and to bring to life the story of Johnnie Walker the world's most popular scotch whisky brand. Turning to U.

S. Spirits, our second focus area, Net sales grew 3.3% with all key brands continuing to gain category value share except in vodka. We are upgrading our investment behind our brands with marketing spend up 6%. Vodka performance improved as we executed plans including Sarat Botker and KetelONE Botker, net sales grew 4.5%. However, Super Premium Botker remains an important area of focus.

As we drive our brands in Nielsen and Napka, Crown Royal delivered a good performance in the year and continued its share gains overall with growth of the base variant Deluxe and Regal Apple continuing. However, overall growth slowed down as it cycled the launch of Crown Royal Manila last year. Johnny Walker and Bailey's delivered good growth and category share gains continue as we consistently deploy plans against those brands. Captain Morgan and spun off performance remains stable, on Smernoff, we continue to remind consumer that it's a quality butler to great price and Captain Morgan continues to gain share within the rum category. Ketal-one marker showed early signs of improvement as we executed improved plans and launched the Ketal-one botanicals variant.

Serak Moatka also saw improvement in performance with the focus on core variants. We remain focused on improving performance of Serak Watker, and there is still more to do. Buchanan's net sales were broadly flat. However, as you see here, sell out performance is good with category share gains continuing. As we will continue to net sales were up 9%, reflecting an acceleration in the second half, growing 16% as we move past the impact of the highway ban and cycled a soft second half last year.

Our strategic priority in India is to grow our Prestigean above brands which now represent around 2 thirds of our business. Our Prestige and Above brands performance improved growing 12% supported by market recovery and also strong marketing investment behind McDowell's number 1, Royal Challenge Signature. At the same time, we of more than 300 basis points, while navigating the impact of implementing the goods and service stacks, which went live on July 1, 2017. This strong margin performance has enabled us to upscale investment in our brands with marketing spend growth up double digit. And in addition, the business has secured both organizational savings and 0 based budgeting benefits, further supporting operating margin growth, which was up 77 basis points.

The progress we've made here gives me confidence that we can deliver our medium term goal of achieving operating margins in the mid to high teens. Let me close by saying these are a set of strong results in line with our guidance range. Performance is broad based and driven by rigorous and consistent execution of our strategy. We've created a stronger business having embedded significant cultural shifts through the organization. We now execute with greater pace agility and efficiency through the right talent, capabilities and tools.

As a result, we've been able to deliver consistent top line growth, increase marketing investment, expand organic operating margins and deliver another strong cash through dividends and share buybacks in fiscal 2018. Our total shareholder return grew 23%. I am confident about to be one of the best performing, most trusted and respected consumer product companies in the world.

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