Good morning, and welcome to Diageo's 2020 preliminary results investor Q&A call. The call today will be hosted by Diageo's CEO, Ivan Menezes, and CFO, Kathryn Mikells. To ask a question today, please signal by pressing star one on your phone keypad. If you're using a speakerphone, please make sure your machine is turned off to allow your signal to reach us. We're now ready to start the call. Mr. Menezes, please go ahead.
Thank you. Good morning, everyone, and welcome to our preliminary results call. I hope you and your families have been staying well through this time. Fiscal 2020 was a year of two distinct halves. In the first half, we delivered good, consistent performance with broad-based organic growth across regions, categories, and we had margin expansion. Our second-half performance, however, was significantly impacted by the global outbreak of COVID-19, with the peak of the impact occurring in Q4. We adapted quickly and acted decisively to protect our people and our business. We supported our customers, trade partners, and communities. We stayed connected to our consumers and rapidly responded to their changing needs. We reduced expenditure, conserved cash, and raised additional liquidity.
The strong foundation we built over the last six years has increased our resilience and agility, and smart investment has given us the technology tools to be effective in this environment. Our insights have enabled us to stay close to consumers, and we've continuously refocused our marketing investment to capture opportunities and strengthen brand equity. The U.S., our largest and most profitable market, has been most resilient. Off-trade demand was strong during lockdown, and our tequila and Canadian whisky brands continued to perform particularly well through the year. Depletions were ahead of shipments, which resulted in a reduction in distributor inventories. In our other regions, we had a much higher on-trade exposure, which meant the impact on our business was more severe. For example, in Europe, around 50% of our sales are normally on-trade, and Africa is a strongly on-trade oriented region.
As these two regions are our largest beer markets, the decline in our beer business was significant during COVID-19. In aggregate, around three quarters of Guinness sales are on-trade in the larger Guinness markets in Europe and Africa. The impact of COVID-19 was also disproportionately high for our Scotch category due to its greater exposure to emerging markets and travel retail. Together, they account for over two-thirds of our Scotch net sales prior to COVID-19. Across all our markets, we moved rapidly to adapt to the reduction in consumer demand caused by COVID-19 in keeping with our disciplined sellout culture. Our decision to take back around 500,000 Guinness kegs from customers demonstrates our commitment to quality. We have also been very disciplined in our working capital management. While the on-trade is gradually reopening in many of our markets, we expect volatility to continue.
Given the significant uncertainty around the pace or shape of recovery, we're not providing specific revenue and profit guidance for fiscal 2021. We expect organic net revenue in the first half of fiscal 2021 to be significantly impacted. Within Q4 of fiscal 2020, we saw sequential improvement. We expect that to continue into fiscal 2021 with sequential improvement in the first and second quarter as the on-trade continues to reopen and consumer demand begins to recover. Today, we announced that we're recommending a final dividend in line with fiscal 2019, bringing the full-year dividend growth to 2%. This reflects our long-term confidence in the resilience of our business and the robust fundamentals of our industry. As we manage through this period, we're determined to emerge stronger.
We are rapidly responding to changing consumer opportunities, investing with agility in marketing and innovation, partnering with our customers to win across all channels, driving efficiencies in cost and cash management, and continuing to do business in the right way from grain to glass. With that, Kathy and I are ready to take your questions. Let's open the line for questions.
Thank you, sir. We have our first question from Sanjeet Aujla from Credit Suisse. Please go ahead.
Morning, Ivan and Kathy. A couple of questions from me, please. Ivan, when you look at the recent NABCA data for the U.S. and also the Nielsen data for Europe, it seems like Diageo is underperforming the categories within the off-premise channel. Can you just talk a bit about your competitive analysis in the off-trade, in particular, post-COVID? In emerging markets, are you seeing any signs of consumers downgrading from the spirit category to beer or even to beer? Thank you.
Sure. Hi, Sanjeet. Your question on U.S. share performance in the off-trade. If you look at our performance across the portfolio, we've got, I'd say, share gaining brands and share losing brands. Tequila, our North American whiskey brands are doing very well. Vodkas and rums are tougher. What I would point to is firstly, beer, cider, and RTD represent about 45% of the market. As I've indicated, our depletions ran ahead of our shipments. We're slightly behind the market. If you go back the past 18 months, the U.S. has got to be in line with the market. We're slightly behind right now when you look at our depletion growth relative to the industry growth. We are very focused in our actions to make sure we improve that going into FY 2021. I have to say, overall, the strength of our U.S. performance, I'm very pleased with.
You will see our price mix is higher than the industry. One of the actions we have taken is not to chase share, but to really keep the quality of share growth strong. Our price mix is running well ahead of the industry price mix if you look at the last recent few months. On the emerging markets, I'd say, you've got a couple of impacts. One is imported products like Scotch, particularly when you have currency devaluations and economic slowdowns. You do have a natural impact of some down trading that takes place from there. This is not new. It's tested over cycles over many, many decades. You would see some of our primary Scotch brands like Black & White and Vat 69, et cetera, picking up, and the top end of deluxe and super deluxe Scotch slowing down.
I would say overall, spirits continues to be healthy. The breadth of our portfolio gives us the ability to say our mainstream spirits play in Africa, we see as a real opportunity for actually spirits to gain share from beer through this period. It's market specific, the trends within Scotch in emerging markets, particularly where currencies have and economies have taken a downward trend. We will see some short-term downtrading in Scotch whisky. Overall, spirits is healthy, and I'd say the actions we've taken to broaden our portfolio position us better to maintain our positions and indeed grow share as we go through 2021.
Got it. Thank you, Ivan. Just following up on Europe, any comments on share trends in Europe between the post-COVID-19 environment in the U.K. channel?
Yeah. Just the context on Europe. One is we are heavily skewed to the on-premise in Europe, right? Because of our beer business. Guinness is significantly on-premise skewed. If you look at our performance, in the most recent months, the at home performances, or the off-trade performance on beer is improving. Guinness is actually gaining share in the off-trade. As the on-trade comes back, and I'm just using the data point of the last few weeks in the U.K., we are also seeing Guinness perform relatively better within the beer category. I'm feeling very good about Guinness. On spirits, we are underperforming the market slightly, but we feel confident going into the first half of fiscal 2021. We've got strong programs, good innovation, and fully expect to do better in our spirits performance going into F 2021.
We have some specific commercial issues in markets like Germany, where there were, because of price increases, we have taken some short-term hits. I do believe the Europe team will see sequential improvement in our share performance as we go into fiscal 2021.
All right. That's very helpful. Thanks, Ivan.
Thank you. Our next question, Simon Hales of Citi. Please go ahead, sir.
Thank you. Morning, Ivan. Morning, Kathryn. Just two or three from me as well, please. Can I just go back to your outlook comments, just so I understand the messaging into the first half of next year clearly. I appreciate you're going to see some sequential improvement in the volume picture, from Q4 into Q1, and Q2. With regards to the margin development in the first half of the year, can you also say you expect to see a sequential improvement from the H2 level? Is that improvement relative to the sequential decline we saw in H2 on organic margins? Around sort of 600, 700 basis points, or is it in terms of the absolute margin level in the second half, a pickup from that level?
Secondly, on stock levels, I think Kathy, in the presentation, you talked about stock days in trade being up in a number of markets due to the reduced demand. I wonder if you can expand a little bit on that. I wonder, should we expect to see some further destocking in the first half, not only in travel retail, but perhaps around Scotch whisky in emerging markets? Just a final quick one, if I can. In fact, at the Capital Markets Day last year, you talked about a further GBP 100 million-GBP 150 million of efficiency savings to come by the end of FY 2022. Is there any opportunity for you to accelerate some of those savings a little bit more quickly into the current fiscal year, please?
Shall I take the stock levels and then you can take one and three? Okay. On the stock levels, we feel really good about where we closed the year. Clearly, the big variable on stock levels is forward demand, forward consumer demand. We're tracking that very closely. Our sell-out culture and the data we have now has us moving very rapidly. We indicated global travel. It's really hard to call the recovery on global travel. That could be an area, we think, which is going to be much slower in coming back. We will not sell into that channel till we start seeing end demand pick up. In the rest of the emerging markets, I feel good about where we are on our stock levels. We will continue to monitor it real time and adjust very quickly.
I'm not expecting de-stocking in other emerging markets in a big way happening, unless, of course, end consumer demand really drops off, which we're not anticipating. We're in good shape on the stock levels.
I'll go ahead and address, first of all, the question about our outlook comments. We've clearly said, as it relates to top line, that we're expecting to see sequential improvement in the first and the second quarter in the first half, relative to what we saw in the fourth quarter in 2020. As it relates to overall margin improvement, I do expect that absolute margin in the first half to be better than what we saw in the second half of 2020. Obviously, I also commented that we continue to expect to see some pressure on a year-over-year basis. You had asked about overall cost savings. What I'd say is, clearly, we've looked to continue to push hard on everyday efficiency. During this COVID period, I'd say we especially scrubbed harder at what I would call discretionary spending.
We tried to take the approach of, I'll call it blank sheet of paper on discretionary spending, and really only do the spending that we think is critical to the business. Overall efficiencies, I would characterize, is actually running on the higher side, if not ahead of what I talked about on Capital Markets Day. The flip side of that is we've unfortunately seen the volume decline and that causing negative gearing in the P&L. I would just remind you that roughly 16% of our business is the beer business. In a place like Africa, 60% of our Africa business is the beer business. That business has, I'll call it, higher fixed costs within COGS. When volumes decline, you would see a bit more pressure in terms of negative leverage across the P&L.
That's great. That's very clear. Thank you very much.
Thank you very much. Our next speaker is Olivier Nicolai from Goldman Sachs. Please go ahead. Your line is open.
Hi, good morning, Ivan, Kathy. Just a couple of questions, please, on e-commerce. You mentioned in the presentation that you've seen some relaxation of regulation allowing you to do more e-commerce in the U.S. specifically. What is the current business model that you're using, and how do you see things evolving as we come out of this crisis? Just lastly, can you remind us what is the state of your sales in e-commerce for the group, please? Thank you.
Hi, Olivier. The percentage of sales firstly is small. It's low single digits. What I'd point to is, if you look at our Q4 e-commerce sales relative to Q3, it doubles. There's some accelerated growth, but they're far less penetrated than other consumer product categories, mostly because of the regulatory environment. Some of those things are changing in markets. We are seeing more access to e-commerce channels in Latin America, Africa, in addition to Europe and China. On your point of the U.S., the U.S. system is still operating within The business is running 4x, four times what they expected in the last few months. What Drizly does is it takes its order from the consumer, but picks up the product at a retail shop or liquor store and then delivers it.
You also have retailers within state who are able to take e-commerce orders and deliver within the state to customers, and that business is growing rapidly. It is from the liquor store to your home, within the state. We don't have national big players like Amazon, et cetera, in the alcohol category. It is very focused on liquor retailers and a few platforms like Drizly, and that business is growing. You also have pick up at the store is growing, where people can place their orders electronically and drive by and have the product delivered at the store so they don't have to enter the store. You've seen in states like New Jersey, that has increased a lot. The convenience and delivery to the home has picked up in the U.S., but still very much within the framework of the three tiers.
The one other thing I would mention is with cocktails to go.
Has also been enabled in the U.S., which allows people to, especially when they're ordering from a restaurant, to not just pick up their food, but to pick up their cocktails as well.
Thank you very much.
Thank you. Our next question comes from Trevor Stirling of Bernstein. Please, your line is open, sir.
Morning, Ivan and Kathy. Just two from my side, please. The first one, Ivan, maybe can you give us a little more color in the U.S.? Shipments are running a little behind depletions. How far behind depletions were they? Are that sort of now stabilizing? The share trends you mentioned earlier, is that slightly worse share performance coming from lower share gains from the Casamigos of this world, or is it higher share losses from Smirnoff and Captain Morgan? I guess final question, can you just comment a little bit on the Indian run rate performance now we're through the lockdowns. What's the state of demand in India at the moment?
Sure. I'll take the U.S. questions, then Kathy can handle India. What we're seeing in the U.S., I would say broadly it's an industry, Trevor, that we think it's a little hard in the last couple of months, but our estimate is growing around 4% in value. I'm talking U.S. spirits. You saw our shipments were two and a bit, and I'd say our depletions are somewhere in between. We are still slightly behind the market and the main areas where we are losing spirit share is in vodka, Captain Morgan, and a bit in Johnnie Walker, and Johnnie Walker is also linked to the lapping of White Walker from the year before. That's broadly where we are. We have very focused plans that Debra and the team have on improving this picture as we go into fiscal 2021.
We still have some very good momentum on Casamigos and Don Julio and Crown Royal, you know the share gainers. That's how I would characterize the U.S.
If we just talk about India. As everyone is aware, they had a six-week complete lockdown in terms of the alcoholic beverage industry in its entirety, production as well as overall sales. Coming out of that, we continue to see good sequential improvement there, kind of May to June and then especially into July. July, really much stronger. I would say we feel pretty good and confident about that continued sequential improvement in India now that the whole kind of countrywide lockdown is over.
Thank you very much, Kathy and Ivan.
Thank you, Trevor.
Thank you very much. Our next question comes from Edward Mundy of Jefferies. Please go ahead.
Morning, Ivan. Morning, Kathy. Two then from me. The first one, capital returns for fiscal 2021. I think, Kathy, you mentioned in the pre-release that H1 net debt to EBITDA is impacted, since already the numbers are falling. As the board thinks around dividends, are there any financial metrics that will help you provide steer around the capital return? For instance, have you hit four times net debt to EBITDA? The second is on innovation, which has been an important driver of Diageo's growth over the last couple of years. Some really good innovations. How does COVID-19 impact your ability to launch innovations? The last one, Ivan, is on sustainability. You've got this paper-based Johnnie Walker bottle, which is really interesting. I see you're mentioning a new 2030 social environmental strategy and targets.
Without giving away too much, can you talk about what the main changes will be following the 2015, 2020 targets?
I'll go ahead and take the first question. You would've seen our leverage ratio increase to 3.3x , and we have said that we target to maintain that ratio between 2.5- 3 x. We made the decision, our board made the decision, and we announced today, although this needs to get approved at our AGM, that we're maintaining our final dividend flat. We earlier announced in April that we've paused our share repurchase program, as a result of that leverage increase that you've seen, and we've said is that program continues to remain paused in fiscal 2021. As you think about the impact of COVID-19, clearly it's had a peak impact in this fourth quarter, and we said we expect to see sequential improvement in the first quarter and the second quarter.
When we get to interim to report at that period of time, we'll be reporting a leverage ratio off of our 12-month trailing EBITDA, right? That's going to take into consideration a 12-month period of time that will have been fully impacted by COVID-19. As a result, I expect our leverage ratio is going to peak at that point in time, and then we would see improvement as we go into the second half of fiscal 2021 and into fiscal 2022. I kind of take a step back from that, Ed, and I'd say if you look at the total financial picture for Diageo, I mean, we do have real financial strength. We're an A-minus rated company. We've taken actions to further bolster what was already a strong liquidity position. We've got GBP 5.3 billion of standby credit facilities. We ended the year with GBP 3.2 billion in cash.
I think we're in a quite good position to continue to make balanced decisions, I would say, with regard to shareholder returns, but ensuring that we really support the ongoing investment in the business for the long- term.
Ed, on innovation, I'd say this is one of the areas we very quickly kind of reassessed our pipeline and our approach. Quite simply, what we are leaning in more to is big recruit and re-recruit innovation on big brands. I'll give you an example. In the U.K. in the last few months, the line extensions on Gordon's, Sicilian Lemon, and Mediterranean Orange, we've had three of them. Literally in the last three months, we've gained seven, I think, eight points of market share in the U.K. with those launches. They're doing very well. There's a Captain Morgan line extension going into the U.S. or has come into the U.S. We're going back to big brands with innovation.
Brands that need seeding and building, and particularly on-trade support, we are delaying, because this is not a time to be building, let's say, Roe & Co Irish whiskey in the U.S. when the on-trade is down. We're slowing those down. We're looking at new opportunities. As an example, the whole space of ready-to-serve cocktails and premix, we see as very attractive. We're doubling down on being much more ambitious on our goals there. Diageo has had a strong track record of innovation. We're not backing off. We're reshaping it to the times. I feel confident going into fiscal 2021, we have some pretty exciting things in the pipeline, which should help our performance. On sustainability, as you point out, yes, the Johnnie Walker bottle got a lot of excitement around it, the paper bottle on Johnnie Walker.
Also, our Bulleit distillery, the new one, is carbon neutral, which is really a big first as well. You will see, we're just coming to the end of a period in 2020 where we had set our goals five years ago, and you'll see the results with our annual report. We've done very well. I'm really proud of our performance on carbon and water. Going forward, on the 2030 goals, it's going to be in three areas. One is sustainability. Carbon, water, recyclability, packaging, the standard metrics there. The second area is in inclusion and diversity. The third is on positive drinking. On all three, we are setting, I'd say, pretty ambitious goals. Diageo leads in this area. We want to continue to lead. Later in the second half, we'll be releasing our 2030 objectives. I can assure you they are going to be ambitious.
They are very core to our strategy. We're putting the resources and effort behind it.
Thank you. Kathy, just to come back to the first question, there's no sort of hard leverage targets that could supersede you from paying a dividend. You look at a number of things, including the run rate, your liquidity. You could be clear there's no hard leverage target that you're paying a dividend at this time?
No. In fact, Ed, I would've said, if you went back into Diageo's past history, at about the time that we acquired the U.S. sales business in India, we also would have exceeded our leverage targets at that time. We really take a holistic view, and a big part of that is just getting more data and information on the pace, and the overall slope of the improvement and positive trajectory that we'll be seeing in the business as the on-trade starts to open up. That's something we'll obviously be keeping in mind, and we've said that the capital return decision will continue to be under review throughout fiscal 2021.
Thank you.
Thank you very much. Our next question comes from Pinar Erdogur from Standard Bank. Please go ahead.
Thank you. Good morning. I have a quick follow-up to Simon and Trevor's question on the U.S. With depletions running ahead of shipments, should we expect some catch up in H1? Do you see wholesalers stocking up ahead of potential tariff risk? Another quick one on the U.S. Did demand for your product benefit at all from the government stimulus plans year to date? Do you see down trading as a risk at all going forward, or would you see continuation of solid demand in the U.S.? Finally, a quick one on India. Has your long-term view on the growth potential of this market changed? What was the key driver behind the impairment charge you've taken? Thank you.
Okay. I'll handle the U.S. and then turn to Kathy on India, Pinar. On U.S. spirits, depletions being ahead of shipments is on the margin. This is not a big deal. The key factor that's going to be important is consumer off-take in the second half, and that's what we're very focused on. We are encouraged by the trends we continue to see in the U.S., and you can see it in the overall industry trends in the U.S., and they remain strong. To your point on demand and how much of it is supported by stimulus, I mean, there's no question there is an impact that consumers have the spending power right now, and while they are stuck at home, we are seeing, both in food and drink and entertaining generally, that there is a willingness to spend.
I would point to previous economic recessions, and the global financial crisis, to me, is the best set of data to look at, where there was a severe impact. What we saw was a very short period of slowdown and downtrading that happened. It was literally two or three quarters. Right now, we're not seeing downtrading. In fact, if you look at U.S. spirits industry data, the higher price points are the ones that are growing the fastest. Could we see some? I'd say we could see it moderate, but I don't expect it to be a sustained trend, because the main source of our growth from spirits in the U.S. is still spirits growing faster than beer and wine. Younger Americans in the 21+ are consuming much more spirits, and in the time of lockdown, where cocktails at home have only gone up.
I see the long-term trends here in terms of premium spirits brands continuing. We could have some short-term impact as if consumer spending gets severely hit. Our history would say I don't see it as a sustained or structural trend. It could be short-term for a little while.
I'd say specifically with regard to India, we continue to have a lot of confidence in the long-term opportunity that we have in India. More recently, we would have seen in the first half, GDP starting to slow in India. Even ahead of the pandemic impact, we were starting to see the economy slow a bit. That softened our results in the first half. India was up about 2% in the first half. That is lighter than what we think the potential of the market and our business is in India. As we've already mentioned, in the second half, literally the entire alcohol industry was closed down for six weeks. Their impact from COVID in the second half was very significant and much more material than we would have seen at the total Diageo level.
We obviously had to take that into consideration, and we've seen the impairment that was taken. It doesn't change our view on India at all for the long- term. The long-term trends there, in terms of population growth over time, per capita income growth, enabling more people to afford our brands, both our international spirit brands as well as our and above brands. Really importantly, the people in India just love whiskey. That really bodes positively for the long- term for our business. I would say, over the long term, we continue to be really bullish that that's a business that's going to be good for Diageo, good for its shareholders.
Thank you.
Thank you. Our next question is from Chris Pitcher. Please go ahead.
Thank you very much. A couple of questions and a clarification, please. Firstly, on China, it looks like you had a very dramatic stock reduction in the final quarter there. Could you give us confidence that you've now cleared out the excess Chinese New Year stock and that you should start to see the recovery early in the new half? Could you give us a feel for what you sense your Baijiu market share is doing? Secondly, on the U.S., you mentioned your price mix is running ahead of the industry. It does look like it faded a bit in the second half, despite what I would expect would have been a period with reduced promotion. We've been here in the past before where you've priced and mixed ahead of the industry and driven good margin expansion, but market share has suffered.
How should we think about your relative price position? You're comfortable with the price gaps on some brands or going into a softer economic backdrop? Should we expect increased promo in the new financial year? Then just finally, a clarification. I think you said you wouldn't ship to global travel retail until you saw a recovery. I assume you must be selling something into global travel retail, or are you literally not shipping anything at the moment? Thank you.
I did do a pretty good type of Global travel, yeah, it's a trickle. I don't know. Very little, because clearly, I mean, there's a dramatic reduction in passenger numbers. We're ready to respond quickly as it picks up, but right now, we're not doing virtually very little business. On the U.S., one of the things I feel really good about is the NRM capabilities that we have built in the team. They've been at it for the last 18 months. The second thing I would say is we are hyper-local in our focus in the U.S. We now have data down to the zip code, to the store level. The analytics and data we are putting behind execution, behind pricing, and the management of mix has moved significantly in the last couple of years.
We've got to get the right balance of share, price, mix, margin. I feel very good about our capability and focus here within our team and working with our distributors to get it right. We have eased off some lower ROI programs that we used to do in the past, and we are leaning in more to ensuring our execution at the point of sale in terms of visibility and display and the launch of innovation and the pace at which we are measuring our execution at stores now with our EDGE 365 capabilities. All of that is significantly ahead. Our focus going forward is to get that right balance of price, mix, and share.
I'd say that managing it at a very micro and very sophisticated level now, and I feel good about going into 2021, seeing improvement in our share performance, as I talked about earlier.
Specifically as it relates to China and overall stock reduction. Our Shui Jing Fang business has reported publicly, and you would see that in, I'll call it our third quarter and fourth quarter, their first quarter and second quarter, top line was down as we look to reduce stock and trade. For our third quarter, their top line was down 22%, more like 90% in their second quarter, our fourth quarter. That was all about reducing stock and trade so that they could basically end what our second half was in good stead in terms of the stocks that remained in stock and trade. They made a commentary on their call about ending the half with stock levels closer to 2018 and 2019 levels. I think they're feeling very good about where they ended stock and trade.
I would have said the same thing overall for our Scotch business, that we're beginning to see, especially the deluxe part of our Scotch business now pick up in China. Overall, the Scotch business in Taiwan, which is reported in our Greater China market, actually was very resilient during this period of time. Finally, I think you asked a question about our value-tier kind of market share. The one thing I would say is if you look across the industry in this most recent period of time, the price point sort of at the RMB 600 level and below has not performed as well as some of the higher price points. Our business participates in the price point at the RMB 300-RMB 600 level.
That's in part because banquets and especially, I'd say business occasions have not yet picked up to the same degree as other occasions. If you looked at how our business was performing ahead of this period of time, we were gaining very strong share. I would say we're very confident that we'll get back to that base pretty quickly.
Thank you very much.
Thank you. Our next question comes from Olivier at UBS. Please go ahead.
Hey. Hello. It's Nik here. Thanks, Kathryn, Ivan, for the questions. Well, it'd be two, actually. One, the first is an extension of Pinar's question on the U.S. I guess if we look back to the financial crisis, I guess that the U.S. market held up fairly well volume wise. I think it was like 2%, 2.5% if we look at NABCA. Would that be kind of a sensible run rate to assume going forward?
I would say based on current conditions and what we've seen, the U.S. spirits market showing kind of modest volume growth and little better value growth will continue. As I said, the biggest source of that volume is coming out of beer and wine. It's growing faster than that. The occasions are shifting. We remain confident about the long-term consistent trend of growth in the U.S. spirits market. As I said earlier, could we have a quarter or two if the economy really gets tough and spending gets constrained heavily? You could see some slowdown and some downtrading, but we don't see that sustaining. I'd say that's a reasonable assumption that we continue with low single-digit volume growth.
Okay, thank you. One final one from me. It's of the Scotch portfolio. You called out obviously Lagavulin, the malt, doing very well, and I guess on CBM, the blends obviously pumping the launch of White Walker last year. How are you thinking about malt versus blends over the next 12 months?
Are you talking about the U.S. or overall?
Yes. Sorry. U.S. All right. U.S. Yeah.
Yeah. I'd say we have a big focus clearly on our malts business as well as on Johnnie Walker and Buchanan's and the blends business. In the early stages of the COVID lockdowns consumer habits, American whiskey have done better than Scotch. In part because Scotch is more about the malts, are more about discernment, and we also skewed to the on-trade in many of these brands. We've got to focus on really getting Johnnie Walker coming back. In the last few weeks, the share performance is a little better. We've got big plans on the brand. Single malts, continues to be positive, and we expect that to continue as well.
Okay. Thanks so much.
Thank you. Our next question comes from Alicia Forry of Investec. Please go ahead, ma'am.
Hi, good morning, Ivan and Kathy. Three questions from me, please. The first one on the U.S. You mentioned distributor de-stocking in the U.S., but we've also heard from many consumer companies in alcohol and in other categories that U.S. retailers are also de-stocking. I was wondering if you could give us your assessment of the U.S. landscape over the near term. Secondly, beer trends at the end of the H2 period. Some peers have reported significant improvement around June. Have you seen a similar development? Finally, on excise. You mentioned excise in India. Are there any other key markets where there is a risk of excise or other unfavorable regulatory developments over the near term? Thank you.
Thank you. I'll take the U.S. and excise. Kathy will take the beer question. I'd say, broadly for the U.S., distributor and retailer stock levels are normal, are where they should be. I don't see, if your question is, are there going to be big changes going forward in stock levels in the trades on the spirit side? I'd say no. They're pretty stable. On excise, we've not seen India had a few states where it just jacked up the excise when they opened up. Many of them have reversed the duty increases. Generally, I'd say so far, we have not seen significant changes. One of the things I'd say that very much in the message we are getting across to governments is the hospitality industry is so critical to the recovery of the economy.
One in 10 jobs in the world and in most countries sit in the hospitality industry. It's mostly young people. This is not a time to be penalizing the hospitality industry. I think that message is landing. There's far more appreciation for what bars and restaurants and pubs mean to the economy and to society now, probably than pre-COVID. We in the industry and working with bars and restaurants and hotels are really getting that message through to governments.
As it relates to beer, I would say, you have to look at the specifics of our beer footprint, because Europe and Africa is the largest, kind of overwhelming majority. Two-thirds of the overall beer business are in those two large regions. What we see is the improvement in our beer business as the on-trade opens up, because both of those regions are also heavily weighted to the on-trade. We mentioned Europe. We're about 60% weighted to the on-trade, but our beer business would be even more heavily weighted than that, given how popular Guinness is in Europe specifically. Similarly in our Africa business, you've got countries like Kenya where some of their trade is a very strong part of that business, and it would be over 90% kind of weighted into the on-trade.
Very much tied to the on-trade opening up. I'd say when you dissect this on a market by market basis, the impact of COVID-19 and the closing of the on-trade was very different market by market, and it kind of came to Africa and Latin America later, right? It landed in Europe. As we've seen the on-trade start to open, we see that improvement coming through our beer business. It's very market specific, and we would certainly expect now that the on-trade is opening up more broadly across markets, that we would see that sequential improvement in beer as we talked about, for the overall company.
Thank you.
Thank you. Our next question comes from Nicolas von Stackelberg from Liberum. Please go ahead.
Hi, good morning, everyone. Can I just summarize here? It sounds like you're saying that you do expect modest recessionary environment and maybe some down-trading for a bit of time, but the recovery of the on-trade should certainly overwhelm any temporary impact from recession and down-trading. My second question is on just the growth rates. Could you provide me with your growth rates for Q4, how you finished Q4 and the start of Q1? I hate being so short-term, but it would be interesting to hear. Finally, I'm not sure if you'll give me the answer, but I'd be curious to hear if you have any comment on consensus for FY 2021. You can see what we can see, but do you think it's achievable and, yeah, what's your thoughts on consensus? Thanks.
Clearly what we're saying as we talk about sequential improvement to our top line in the first quarter and the second quarter of this fiscal half, we are saying that while we are expecting some impact from both a recession overall, impacting different markets differently and some level of downtrading, that we think volumes coming back are going to overcome those other impacts, hence the sequential improvement we expect to see coming from the fourth quarter. As it relates to kind of overall, what did our fourth quarter look like? Top line, overall for the half was down 23%, and for the fourth quarter it was closer to 40%. Then specifically as it relates to the first quarter, we're not giving out monthly numbers for the quarter.
I would just go back and again tell you, we've clearly already seen an improvement in terms of July relative to June, and we'd expect overall, the first quarter to sequentially be better than what we saw in the fourth quarter.
On consensus?
We're not giving specific guidance, so I'm not going to comment on consensus.
Thank you.
Thank you. Our next question comes from Nikhil Shendurnikar from Landmark Family Office. Please go ahead, sir.
Yeah, good morning. Yeah, I have two questions, basically. One was on the U.S. market. Clearly the hard seltzers market there is booming and taking significant share from traditional markets. I understand we don't really consider that as a focus opportunity. I was just wondering why. Any specific reasons why we've not looked at the hard seltzers market in the U.S. and try to expand there? The second one was, follow-up to some earlier questions. Our China share in our total revenues is, say, less than 5%. Do you think this grows over a period of time, and anything specific which we still have to do where China really becomes a more significant part of overall business pie? Thank you.
Sure. I'll take these. In the U.S., as we haven't talked about it much on the call, Diageo Beer Company, which sells Guinness and beers, and FMBs and seltzers, we have a line of Smirnoff seltzers, is doing really well. It's among the fastest growing beer companies in the U.S. right now. We have a small position in seltzer, but we have deliberately decided not to make a big investment into that category because quite frankly, we have better places to invest in the U.S. when we look across our total portfolio of beer and spirits. We're clearly benefiting from the trend right now, and you see it in our beer business performance, or the beer company performance in the U.S. We have taken the seltzers into Europe. They're in the U.K. and in Ireland right now, the Smirnoff lineup.
We are participating in that sector, but not making it a big strategic priority yet for investment. China, to answer your question, yes, I expect China to keep becoming a bigger part of Diageo. Our two main businesses there, Baijiu, has a very good runway ahead of it, and we fully expect that to be a business that gets back on a steady trajectory of growth. We are very encouraged by the early signs on Scotch whisky, and we are building the top end of Scotch whisky. When I say early signs, the last few years, where the interest in Scotch at the top end, super deluxe and malt, is really building very nicely. Even in this very challenging period, our Scotch whisky business in mainland China grew.
In fact, if you look at e-commerce, Scotch Whisky outperforms other forms of international spirits on e-commerce platforms as well. Long term, I'd say China should be a very attractive growth engine for the company.
Great. Thank you.
Okay. This is the last question.
Thank you very much. Our last question comes from Richard Withagen from Kepler. Please go ahead.
Yes. Good morning, all. Thanks for the question. I have two, please. First of all, in the prepared remarks, you talk about leveraging malts.com and thebar.com. Can you give some more details what initiatives you take in this area, and how that benefits your brand portfolios? The second question I have is, you mentioned RADAR, your tool to project market demand. Can you talk about what kind of underlying data go into RADAR, and if the sensitivities to this underlying data in the various regions are very different?
Sure. Firstly on, I'd say, digital commerce more broadly, the posture the company is taking is we want to be a leader here in the shaping of digital commerce in beverage alcohol. We have a number of initiatives, including working with the big platforms, working with retailers, and as we point out, we have some direct-to-consumer platforms like malts.com and thebar.com. I'd say they're still small. We're very much in experimenting mode in markets in Europe and Brazil, et cetera. We're doing it for learning, and we will clearly learn and scale up from there. If I look at what we're doing in Europe and China, and even in the U.S. through this three-tier system, we're really building our digital commerce capabilities. We're moving very rapidly in that area. We're investing behind it because we do believe it's going to grow faster than the overall market.
One of the things I'm encouraged by is actually our market share in e-commerce channels, for the most part, tends to be higher than in physical channels. It is an environment where well-known brands that are well supported do well.
The second question.
RADAR.
was about RADAR.
This is, I'll call it another module that we're adding on to our Catalyst tool. Sometimes we'll talk about our EDGE tool, which is about everyday execution, at the outlet level in markets, and that we're able to get a lot of data and information about what's happening around a particular outlet. What are consumers drinking in terms of bars in the neighborhood? What are the demographics of the neighborhoods, and what would that trend to lead us to believe are the best types of Diageo brands to really have at that outlet, and what are programs that we can run that will be a win-win both for Diageo and the outlet owner? It's all about trying to get, I'll call it, hyper-local information and really trying to make sure we're on the ground getting those local insights.
What this next module within Catalyst does is something similar, and it's looking to grab external information, not just about the macroeconomic situation in a place like the U.S., but about the specific economic situation at a ZIP code level or within a region, within a state, so that we understand what's happening both at a very micro and local level, again, so we can determine what are the best programs for us to run so that we have high confidence that our marketing dollars are really going to get a high return. It's all about having more and more local information so that we can make local decisions. Clearly, we run some national advertising campaigns, but this is about really being able to, on the ground, do different things locally. That's great for our brands and overall great for the business.
Very clear, Kathy. Thanks for that.
You're welcome. Well, why don't I draw to a close here? Again, a big thank you to everyone for your interest in the company. I hope you and your families stay well and safe. Kathy and I look forward to connecting with many of you in the next few days. Thank you.
Thank you, everyone. This concludes today's conference. Thank you for your participation. You may disconnect.