Here, just-drinks takes a look at the key themes from the call, as well as analyst reaction.
"Our strategy in Africa is to grow our beers fast and our spirits faster," says O'Keeffe. The president also outlines a symbiotic relationship between the two categories - and one, he believes, Diageo is uniquely placed to capitalize upon.
"Over five years ending fiscal-2016 (to end of June), we delivered more than double the growth rate of spirits in our markets with an established beer platform, compared to those with a majority spirits business," he says. "And, the operational synergies are significant."
Analyst Chris Wickham from Whitman Howard adds: "In the company's opinion, beer opens up the African market to all of Diageo." He says that going forward, beer will continue to grow "but spirits are expected to be the main driver of faster growth".
Diageo's O'Keeffe notes that consumers are increasingly including spirits in their repertoire and switching between beer and spirits. "More than 40% of beer consumers ... consumed spirits in the last four weeks," he says.
According to O'Keeffe, international premium spirits are "out of reach for most Africans" at the moment. However, he maintains that they are an "important" part of the company's growth agenda in the region, as it looks to participate across all price points.
"GDP growth has slowed down sharply in the last two years among oil exporters, of which Nigeria is the most relevant to Diageo's Africa business," O'Keeffe says. "In Nigeria, currency scarcity and devaluation are driving a high inflationary environment, making affordability even more important to consumers."
Digging into the detail, SocGen's Whyatt notes that Diageo is competing not just with other alcohol producers. "The macro is still tough, with inflation running at 17% and weak disposable income meaning that beer is competing with other discretionary expenditure, such as mobile phones," he says.
At the moment, 70% of Diageo's COGs in Nigeria are locally-sourced, protecting the firm against transaction exposure. "The target is 80%," notes Whyatt.
The firm is investing at the mainstream end of the market - in both beer and spirits - in response to greater consumer demand.
"Historically, our beer business has centred around premium beer," says O'Keeffe. "In recent years, we've seen consumers migrate to value beers in a number of countries. Nigeria is a good illustration of this, where over the last 2.5 years, the value beer segment has increased volume share from 26% to almost 50%."
O'Keeffe also highlighted several cost-saving initiatives in Nigeria, including "right-sizing" the brewery workforce, improving efficiency and reducing waste, energy and water usage.
"Diageo took price over the last nine months [in Nigeria]," note Exane analysts. "The company expects Nigeria to play its fair share in operating margin expansion in Africa. Guinness Nigeria is undertaking a rights issue to de-leverage its balance sheet. Diageo is participating in the rights issue. Diageo will focus its capital investment on expanding mainstream spirits.".
Throughout the call, O'Keeffe outlines several recent launches in various African markets. Here's a run-down:
- Meta beer re-launched in Ethiopia
- Low-sugar Malta Guinness Herbs Lite rolled out to Nigeria
- Value beer Ngule launched in Uganda
- Lager Azmera, made with local ingredients, made its debut in Ethiopia
- Value malt Dubic Malt launched in Nigeria
- Black Bell - "a rich and flavourful beer targeted at Millennials" - rolled out in Uganda
- Tusker Premium Cider and Smirnoff Ice Electric Guarana and Ginseng launched in Kenya
- Sparkling, palm wine-inspired Tappers Palms appeared in Ghana
- 5cl Orijin Bitters sachets rolled out to Ghana and Nigeria
- Kenya Cane Coconut flavour launched to "re-energise the Kenya Cane franchise" in Kenya
- In Nigeria, spirits launches included locally-manufactured Smirnoff X1, McDowell's No. 1 and a new flavour of Gordon's Gin
CRedit: www.just-drinks.com
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