Earnings Transcript for BEAM - Q3 Fiscal Year 2013

Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to Beam's Third Quarter Earnings Conference Call. [Operator Instructions] Now I would like to turn the call over to Matt Shattock, President and CEO of Beam. Sir, you may begin your conference.

Matthew John Shattock: Thank you, Rob. Good morning. Bob Probst and I would like to welcome you to our discussion of Beam's 2013 third quarter results. Before we begin, please note that our presentation includes forward-looking statements. These statements are subject to risks and uncertainties, including those listed in the cautionary language at the end of our news release and in our SEC filings, and our actual results could differ materially from those currently anticipated. This presentation also includes certain non-GAAP measures that are reconciled to the most closely comparable GAAP measures in our news release or in the supplemental information linked on the Webcast and Presentations page on our website. I'd like to begin with some context of how we view the momentum of our business as we enter the fourth quarter. Despite the lower third quarter results that Beam reported today, we continue to anticipate delivering good growth for the full year at the top line and even stronger growth at the bottom line. And we believe the fundamentals of our business remain strong, particularly our leadership with the Bourbon category, our strong position in the U.S. and global routes to market and our success in driving growth through innovation. These strengths put us in a good position to drive sustained outperformance over the long term. Before Bob walks you through the numbers for the quarter in detail, I'll provide an overview of our Q3 top line performance, our current momentum and outlook and why we're confident in Beam's prospects. First, our Q3 comparable sales were down 4% from the prior year quarter, principally reflecting the impact of factors we called out last quarter. We see these as discrete factors largely related to timing

Robert F. Probst: Thanks, Matt. I'll start with a review of how we see our market as we head into the fourth quarter. As we expected, the U.S. market improved in Q3 from the growth dip we called out in Q2. There was no material improvement in European markets, which remained relatively stagnant. However, we did see some unanticipated market dynamics, namely continued slowing in emerging markets, as others have discussed, and a slowdown in Australia as the election season exacerbated an already uncertain consumer environment. As we move through the fourth quarter, our assumption is that we'll see gradual improvements in Australia and slow recovery in emerging markets. Based on these assumptions, we continue to estimate our global market footprint will grow in the range of 3% for the full year. Now I'll walk through the numbers for the third quarter, starting at the top line. Net sales for Q3 of $599 million were off 4% on both a reported and comparable basis, which adjusts for foreign exchange and the impact of M&A. As Matt indicated earlier, our comparable sales were impacted by discrete factors largely related to timing that collectively reduced our Q3 sales by 7 points. Let me unpack that. The timing of sales in the U.S. adversely impacted sales by 3 points of growth as distributors brought down inventory levels. The timing of sales in emerging markets within the second half accounted for 2 points, together with 1 point from challenging comparisons in India. And the timing of sales in Australia, due to the reduction in trade inventories by a major customer, impacted sales by 1 point. I'll come back to these timing issues and their implications for Q4 when I discuss our outlook. Outside of these timing issues, the performance headwinds related to Australia and the U.S. ready-to-serve cocktails category further impacted the top line. Year-to-date, reported net sales growth was 3%. On a comparable basis, sales for the 9 months were up 1%, reflecting market outperformance in both North America and EMEA, partly offset by lower sales in APSA. We estimate that India and sales timing in emerging markets in Australia collectively reduced year-to-date sales by about 3 points of growth. Favorable mix benefited both quarterly and full year sales. Turning to operating income. Operating income was $145 million for the quarter, down 11%. And on a before charges/gains basis, OI was down 10% to $148 million. The Q1 operating margin increase continued to unwind in the quarter. Gross margins for the quarter were better than expected due to the timing of costs, despite the fact that, as anticipated, we faced a significant Q3 headwind largely due to the timing of raw material-related costs, foreign exchange and a challenging comparison in EMEA. Brand investment was slightly ahead of sales. SG&A in Q3 was down, reflecting ongoing cost containment. On a year-to-date basis, OI before charges/gains was up 6%, benefiting from sales growth and 60 basis points of year-to-date margin expansion driven by gross margin expansion and timing of BI spend. Moving now to income from continuing operations. On a reported basis, income from continuing operations was $85 million or $0.52 per diluted share compared to $98 million or $0.61 per share for the third quarter of 2012. Reported net income in the quarter reflected a net charge of $0.07 per share, principally reflecting a loss on early extinguishment of debt related to our bond repurchases in the quarter and the organizational restructuring noted earlier, partly offset by net charges and gains related to the true-up of acquisition-related reserves. Excluding charges and gains, third quarter income from continuing operations was $96 million or $0.59 per diluted share. That's versus $0.63 in the prior year period and reflected the lower sales, the timing of raw material-related costs and a challenging comparison in the EMEA segment, partly offset by a tax planning benefit of $0.02 per share, which resulted in the lower effective tax rate in the quarter. Through the first 3 quarters of 2013, diluted earnings per share before charges/gains is up 8%. Turning to Beam's segment performance. I'll start with a reminder that our reported segment results under GAAP exclude charges and gains. Results, unless otherwise noted, are on a constant-currency basis, which adjusts for foreign exchange. And we also present sales on a comparable basis, which, in addition to adjusting for FX, also adjusts for acquisitions and divestitures. Starting with North America. Q3 sales came in at $375 million, off 1% on both a reported and comparable basis, reflecting the factors we called out before, namely distributor inventory unwind and performance of the ready-to-serve cocktails segment. We estimate the distributor inventory work-down reduced North America's quarterly comparable sales by 5%. Sales grew at a double-digit rate in North America for premium whiskey at Jim Beam, Maker's Mark, Basil Hayden's and Laphroaig. Another strong quarter in Mexico contributed to North America's results. As Matt indicated earlier, Q3 consumer sell-through data was quite a bit stronger than sell-in despite lower sales for Skinnygirl, and we're encouraged that U.S. sell-through accelerated in our largest premium categories. Demand for our Bourbon Brands further strengthened. Our Tequila portfolio showed continued momentum, and despite the unwind of inventories, Pinnacle Vodka performed very well in the marketplace, with consumption estimated to be up double digits. North America's operating income for the quarter was off 4% to $101 million, reflecting the lower sales in the phasing of brand investment. Year-to-date sales in North America are up 4% on a comparable basis and reflect modest market outperformance led by our Bourbon Brands, partly offset by the lower sales of ready-to-serve cocktails. Operating income in North America is up 12% year-to-date, reflecting strong sales, favorable price mix and the leverage of SG&A expense. Moving to Europe/Middle East/Africa, or EMEA, our Q3 sales were $120 million, up 3% on a comparable basis as we continue to outperform across Europe. EMEA's results reflected double-digit growth for Jim Beam, Laphroaig and Maker's Mark and very good growth for Courvoisier and Teacher's, partly offset by lower sales of local brands in Spain. Geographically, Germany, our second largest Bourbon export market, delivered another quarter of strong growth. Our Bourbon strategy is firing on all cylinders in Germany and across the rest of EMEA, led by Jim Beam, the German market's leading North American whiskey. In Germany, Jim Beam White is up double digits year-to-date. Red Stag and Devil's Cut continue to add strong incremental growth, and Jim Beam Honey has really taken off, capturing more than 75% of the honey whiskey market. It was also a very good sales quarter in Russia, Central Europe and travel retail. Sales were stable in the U.K., and while sales were off in Spain against tough comp, we've significantly outperformed that challenging market year-to-date. OI in EMEA was $27 million for the quarter, off 5% in constant currency, reflecting a challenging comparison that benefited from a nontax -- non-income tax settlement we called out last year. Year-to-date, comparable sales in EMEA are up 4% and operating income is up 7%, reflecting strong top line outperformance and operating leverage. And turning to our APSA segment, Asia Pacific/South America, which is our smallest segment, but still an important one. Even considering a tough lap against strong results in the year ago quarter, APSA's results were below our expectations with Q3 sales of $104 million, down 20% on a comparable basis. Given the size of this decline, I want to spend a few minutes unpacking the drivers and discussing their impact. In the quarter, we saw 3 timing-related factors that collectively had an adverse impact on APSA sales of 16 points

Matthew John Shattock: Thank you, Bob. We're on track for a good year in 2013, and we feel well positioned for 2014. We see future market outperformance delivered through our continuing leadership of a resurgent Bourbon category, our overall strength in the U.S. and outperformance in EMEA, together with more favorable comparisons in India and for Skinnygirl. At the same time, strengthening our performance in APSA will be a key priority. We're pleased with how far our team has come, how we've built our brands, enhanced our routes to market and improved our organizational efficiency and effectiveness. And as we approach the end of the year, we look forward to continuing to build a track record of delivering sustainable, profitable long-term growth in our dynamic industry. Bob and I will now be pleased to respond to your questions.

Operator: [Operator Instructions] Your first question comes from the line of Bill Chappell from SunTrust.

William B. Chappell: I guess, first on Australia. Can you kind of give us a little more idea of what's going on there? I mean, I'd heard some sources say it's just -- the taxes have kind of gone so far that it's really crimping demand, and it's not just the overall economic, but it's actually category-specific for Spirits? So are you seeing that? I mean, do you expect this to really be a drag going into next year, or is the worst kind of behind it?

Matthew John Shattock: It's Matt. Yes, let me give you a bit of context, as you asked for, around Australia. It's a very important market for us and one which is quite unique in the sense that about 1/3 of the Spirits industry there is in the RTD format. And that sort of clearly competes with what is a big beer market. So understanding the price value context is important. And I do think the macroeconomic uncertainty that the consumer was seeing and experiencing in the second into the third quarter did have a bigger impact than we anticipated on the market. And that was probably exacerbated by the election. Going forward, we're very focused there for making sure that our position in that market and the value proposition we put to the consumer is as sharp as possible. So we're not just doing sensible, intelligent work in terms of price promotion, which are at the right gross profit levels, we're also looking with our partners at CCA, who give us a real advantage here, to get the right value propositions in front of the consumer. So for example, the introduction of 4-packs, the introduction of 15-packs, they can hit key price points and can work together with an overall very strong Jim Beam brand and strengthen equity through our Make History campaign to really make sure that we bring the best value proposition forward. We hope the market will continue to come back. It was down low single digit in the third quarter. We hope it will come back in response to a broader, better economic environment. As an augment to that as well, we have our other very important brand there, Canadian Club. And as Bob commented, that's a real growth engine for us. It's almost 1/4 of the size of the Jim Beam brand now in that market, and it's a real challenger to beer. And we're confident that will drive continued growth. And then further on top, we're going to augment this with further innovation, so against prevailing consumer trends. Light drinking is one, so we've got CC Summer Crisp going into the market with the summer season; the underlying trends towards convenience and wellness, so we've now got Beam and zero calorie cola on the market. And that, combined with an overall focus on really driving excellence in our route-to-market execution. And frankly, adjusting to a more competitive price environment but doing so intelligently will be the way forward, and we believe that will bring us better results in Australia as we go forward.

William B. Chappell: Got it. And then just switching to ready-to-serve, I mean, how should we look at Skinnygirl kind of going forward? I mean, is this a pure ready-to-serve? I mean, is it a -- was it a trend that's starting to fade, or have you gone as far as you think you can in terms of brand extensions and you maybe don't spend quite as much going into next year? I mean, at what stage are we for that whole kind of enterprise?

Matthew John Shattock: Yes, let me give you a couple of thoughts on that, Bill, as well. Certainly, we've seen a very soft category this year. And I do think that, that was impacted significantly by a poor start to the season, the very poor weather and a category that's 3x more reliant on impulse purchase and display, really caused our customers to not give as much space on the floor. And we were cycling explosive growth a year ago, when really Skinny had put out a lot of innovation and really drove a lot of excitement in the category. So given that the category is probably 50% higher in quarters 2 and 3, we'll see that seasonality come off in the fourth quarter and we'll go against better laps. We're also, though, I think, confident in what this brand has. Calorie-controlled cocktailing for women is an important concept and one that's actually now got quite a loyal band of quite passionate advocates for this brand. And as we broaden the shoulders, we've now got about 40% of the brand's volume coming out of wine and vodka. We believe that will be a good driving force for it going forward. To size the brand, I think it's hard to say specifically at the moment. It's about, on a current run rate, about 2% of Beam sales. What I would say is, in the long term, we still think it's a good prospect and it's got good growth potential. And in the meantime, to your point, we will focus on those core consumers and those core channels with the products that really matter and make sure that it gives us the right returns going forward.

Operator: Your next question comes from the line of Judy Hong from Goldman Sachs.

Judy E. Hong: A couple of questions. First, I was hoping if you could just give us a little bit more color on your emerging market performance. Clearly, you've talked about some softness in the underlying trends. Maybe just a little bit of color on some of the markets? And then it sounded like, though, the decline that you saw in the third quarter, you're attributing it mostly to the timing of sales and you do expect better underlying trend in the fourth quarter. Just wanted to see if I got that right. And then sort of what actions you're taking kind of drive -- to drive that recovery in your EM markets?

Robert F. Probst: I'll take that one, Judy. So we've seen the same slowdown in emerging markets that other companies have. Usually, as you know, that we were generally less exposed to those markets, but nonetheless, it did have a performance impact in the quarter. We do not expect anything other than a gradual recovery in the emerging markets. And if you step back and look across them, pretty much all of the BRIC countries, what you see as a common denominator is weaker economic conditions in driving a slower rate of growth in the Spirits category, within which, in certain countries, we see some government actions which are affecting the industry as well. I think China, there's a lot of talk about the greedy [ph] gift-giving affecting the business; or in Brazil, where we know the drink-driving regulations had impact. Or indeed, in Russia, where the market's gone black and advertising restrictions are limited. So in that context, we don't expect a quick turnaround. That said, we, like others, continue to see emerging markets as an exciting opportunity. We continue to invest in those markets. We've been investing in routes to market throughout the BRIC countries. I'd highlight Mexico as one that's performed very well for us in the quarter and year-to-date. We've got a new partner, La Madrilena, there, and that business has done very well for us. So we're certainly not giving up on emerging markets by any stretch, but it's going to be a slow-burner recovery. To answer your timing point, there certainly is volatility in emerging markets, there's no doubt about it, off a smaller base for us that drives some significant swings, plus that's in the second half. That impacted about 2 points we saw for the company in the quarter. It should come back in the fourth quarter. So really, it's a timing issue. And it comes down to things like when ships arrive at port, it comes down to that. So really, it's timing-driven.

Judy E. Hong: Okay. And then my second question is just looking at North America margin performance. I was a little bit surprised by the decline in North America margins and just wanted to see if this is purely the timing of brand investments and if there's anything, either pricing or mix behavior, in the third quarter that may have affected the North American margins.

Robert F. Probst: No, it really was brand investment timing. The gross margin performance in North America has been positive, the positive price mix we've seen for the company, very much reflected in North America. So it truly is a function of the brand investment timing.

Operator: Your next question comes from the line of Bryan Spillane from Bank of America Merrill Lynch.

Bryan D. Spillane: First, just a couple of questions, clarification on the guidance. If I understood it right, or maybe I want to make sure I'm understanding this. Is the difference between high single-digit EPS and low end of high single-digit EPS really just the -- now that currency is going to be more of an adverse impact, that really affects kind of where you land in the range?

Robert F. Probst: No, in fact, the range of high single digit has consistently, for the last 2 quarters, incorporated a couple-point impact of foreign exchange, so that continues. The change to the lower end of high single digit is really a function of the APSA performance that we saw in the quarter and outlook for the year, and that lowered us to the bottom end of that range. Foreign exchange has been relatively constant the last few quarters.

Bryan D. Spillane: Okay, and then just a second question just on free cash flow. I guess I was trying to understand just the reduction in your outlook for free cash flow. How much of it is related to a change in operating profit, and how much of it is related to other items like restructuring costs or working capital? And I also noticed in the press release that there's a -- I guess there was a write-down on Skinnygirl. So if you could just talk about whether that was an effect, or just what's affecting the free cash flow outlook for the year?

Robert F. Probst: Sure. The target, now at 275 to 325, really has changed due to the shape of the timing of our P&L delivery. Cash flow for us is quite seasonal. Q4 is always a very significant driver of cash flow. And within that, it literally comes down to when the timing of shipments occur, timing of brand investment. And so that really is the key driver, that shape of the fourth quarter. With a softer third quarter and a stronger fourth quarter, fundamentally, that's what drives the cash flow, which has a spillover impact into '14 ultimately. It is not a reflection of a loss of confidence in the cash-generating potential of the business, the long-term conversion potential. Those are -- all remain -- so really, it's down to that timing of the P&L saving.

Bryan D. Spillane: Okay. So there are no other sort of unusual costs, cash costs that you've experienced that are driving it. It's just the shape of the profit delivery.

Robert F. Probst: That's correct.

Operator: Your next question comes from the line of Mark Swartzberg from Stifel.

Mark D. Swartzberg: Question, not so much Beam as U.S. Spirits generally, just 2-part question. It looks like, from the NABCA data, on trade data, it looks like the category overall has slowed as we've moved through the year. It's still positive, but slow nonetheless. Is that a fair characterization? Do you see that? And then if it is fair, what do you think is going on?

Matthew John Shattock: No, I think that what I characterized is we did see a dip in the second quarter. And we forecast that we'd see that come back hard, and it has done, indeed, from that dip. It was very much one that was associated with the weakness in the ready-to-serve category. We're seeing a North America market growing in the 3% to 4% range. And we've seen sustained performance, and it's really being powered by the strength in brand spirits. It's started with now, I think, the third year in a row of double-digit growth in the Bourbon category. And we're seeing good growth across Canadian Scotch and Cognac and Irish. And that's obviously good from our point of view because that's where we've got our highest exposure. The area that also has been doing well since we last spoke to you was in Tequila, which has been accelerating to about a mid single-digit rate. Vodka's been a little bit below the market. It's had a few quarters now where it's still been growing, and it still represents 1 in 3 beverages served in the Spirits industry in North America, but it's probably been a little bit lower than the market. Although certainly, the Value premium segment, where we're focused, continues to thrive. And then sort of in terms of just a bit of color on that, I think the overall shape of the market is in that 3% to 4% growth. Probably half is coming from mix, so that trend towards premiumization is continuing. And then the remainder is split equally between price and volumes. So I'd say, on the whole, we're seeing reasonable momentum in North America markets following the dip we saw in Q2.

Robert F. Probst: I'd add that the on-premise is one area that has trended weaker over the course of the year. That said, there's been some very recent data suggesting it might be improving, but it's still early days. Within that, fine dining feels like it's the winner, doing better than the other channels like casual dining, for example. So on-premise, a bit weaker than we've seen lately.

Mark D. Swartzberg: And if we -- tell me if I'm connecting dots accurately here. It seems like the on trade slowdown, the white spirits, it sounds like Brown continues to have the momentum it's had, even have a pickup in momentum. But white is actually slowing overall. And I'm really looking at like NABCA data through August, through September that's partly driving that thinking. Again, not so much from a Beam perspective, it just seems like from -- the larger Spirit segment, since the second quarter, has actually gotten a little bit weaker. Is that a fair understanding from where you sit?

Matthew John Shattock: I would say, in a sense, all those are rising. And certainly, we're seeing growth in the white spirit categories, and Vodka included in that. But it's not quite at the rate of the market, but it's continuing to show growth. But really, the standout has been brand spirits, and that's really been the power force behind the growth in the markets. So I'd say it's a reflection more of branded spirits' strength than any fundamental weakness in the Vodka or the other white spirit categories.

Operator: Your next question comes from the line of Vivien Azer from Citi.

Vivien Azer: So clearly, brand spirits continue to do very well, and I expect that's emboldened you to take some more pricing. Can you talk a little bit more in detail about the pricing that you referenced, Matt, please?

Matthew John Shattock: Certainly, we can, Vivien. As we've said, we've been very encouraged by what the trends we've seen in our performance in the business overall, and particularly in Bourbon. And so as we've gone through this year -- obviously, I refer to the fact we have the carryover of the pricing that we led in 2012. And through good management of mix, we've taken pricing effectively this year on Maker's Mark. So as we got to the end of the year, across our portfolio, we'll be implementing, towards the back end of the quarter, low single-digit pricing increases to varying degrees across our Bourbon portfolio here in North America. So in the context of some challenges in other areas, where I think there is some more price competition we're seeing in white spirits like Vodka and Tequila, that will give us a good platform as we go into next year.

Vivien Azer: Sorry, and just to follow-up on that. Is that incremental to the pricing that you talked about last quarter at the low to mid singles?

Matthew John Shattock: Yes. Well, this is pricing that we'll effectively be putting in towards next year. So the pricing would be [indiscernible], so this is the new pricing at the end of the year, yes.

Vivien Azer: Perfect. And then in terms of your CapEx, I think your guidance came down just a tiny little bit. And I'm wondering, does that reflect kind of good positioning in terms of having built out some capacity and that you guys are feeling a little bit more comfortable that now you just need to lay down the inventory and wait?

Robert F. Probst: Yes, Vivien, we've been investing heavily, as you know, over the last several years, particularly behind Bourbon capacity. That continues. So the declines you're seeing really are outside of the Bourbon investment. So things like IT, for example, where we've been investing as part of becoming a public company over the last several years. That rate is starting to come down in some other areas as well. So we continue to invest and are excited about the Bourbon opportunity. That's a multi-year program. So it's really the other areas that sees the decline.

Operator: [Operator Instructions] Your next question comes from the line of Tom Mullarkey from MorningStar.

Thomas Mullarkey: I believe you said in your prepared remarks that globally, flavors are representing about 10% of Jim Beam's volumes. Can you comment how that metric varies between U.S., Germany and other key international markets? And along those lines, over the next few years, how you think the mix of flavors will grow as you continue to expand internationally and maybe bring more women into the bourbon category in the U.S.?

Matthew John Shattock: Certainly. We've seen, internationally, a very good performance from our flavors. The standout this year for us has been in Germany, which has been a real big success for us. And Jim Beam Honey has, on the back of Red Stag, been a key growth driver there. In fact, we've now got Red Stag in more than 30 markets around the world, and Honey is now in 30 markets. The one market where we haven't seen such success, and it's probably related to my other comments on the RTD deliveries in Australia. But more broadly, the performance of flavors has been very strong. We think it's driven about 40% of the growth overall in the Spirits market in North America. And it certainly, for us, is a growth driver, both in white and in brand spirits. Specifically to your point, that 10% number on Jim Beam, we do think it's got headroom for growth. If we benchmark against other players in our sector, we certainly think there's opportunity to see continued growth there. And as you say, it's exciting because it's both bringing new consumptions occasions to the brand, but also it's bringing new consumers into the market. We think females are now participating in flavored Bourbon at twice the rate they are in the unflavored Bourbon.

Thomas Mullarkey: Great. And changing to tequila. I believe that you said you had market share gains in the quarter. Do you think these gains are somewhat permanent, or are they temporary because Cuervo's utilizing a new distributor as of the start of July?

Robert F. Probst: We feel good about Tequila performance and the underlying consumption gains and share gains we've seen recently. We've been saying consistently and performing over the last several years, really with a long-term view on Tequila. We think it's an exciting category. It's our second-largest category within the company, and we've been very focused on brand building. Sauza, within that, has really benefited from innovation. So the blue 100% agave, Sparkling Margarita, to name a few. But over and above that, things like Hornitos are really starting to get some traction in the premium price points. So it's a long-term game. There's obviously the supply-demand cycle as you go through in agave. We're continuing to work through that excess supply situation as an industry. We do expect that, however, in the coming year or so, to unwind. And so therefore, we've been playing the long game and, within that, gaining share.

Operator: And our last question comes from the line of Edward Mundy from Nomura.

Edward Mundy: As you think about your distribution platform over the next 5 or 10 years, and North America inevitably will start to come down, can you comment on areas of white space, where you currently don't have distribution that you'd like to target?

Matthew John Shattock: Are you talking about this internationally? Is that your question?

Edward Mundy: Internationally, yes.

Matthew John Shattock: Yes, we have a -- as I said in my earlier comments, we've had a balance between owned and partner routes to market. And certainly, internationally, the role of the partners helps us out there by a scale [ph]. We're agnostic about how we get to those markets, and we only take the best course forward. But certainly, as Bob said, along with the [indiscernible] industry, despite the recent challenges in emerging markets in the long term, we think that represents about 1/4 of our growth, and therefore, we've done a lot of work in the past couple of years to make sure we've got the right foundations there. For example, we have a new partner in China, Asia, Europe. We've done a very good job despite the challenges of that market. In India, we have our own standalone route-to-market. We have an integrated supply chain there, but we'll continue to build upon that platform as we drive that growth over the long term. And the new markets like Brazil, we have a third-party partner. I think probably the best example recently is -- of where that comes together is Mexico. Bob commented on the fact that we've had excellent results this year in Mexico. We have a partner there, La Madrilena. And last year, we took a decision to consolidate all of our brands. It was sprad across a number of distributors into that one partner. And that's really been an excellent partnership and platform for us, which has really been quite clearly driving our growth and share gains over the last year. So essentially, I'd say the areas we're looking at are the big international emerging markets. And our approach to those is very pragmatic, and finding the right partner will often be the right solution for us so we can amplify scale and do that in a way which really does drive growth from returns over the long run.

Edward Mundy: And can you comment on whether you're looking to get distribution to Africa as a potential area of brown spirits growth?

Matthew John Shattock: Absolutely. That's obviously a very important horizon for us. We have a team there, and we have a small but good business, mainly focused in South Africa. And along with others, that certainly, over the long term, is a good prospect for us.

Operator: I will now turn the call back to Matt Shattock for closing remarks.

Matthew John Shattock: Thank you very much again for joining us. We'll join you again in early February to discuss our Q4 and full year results. Thank you.

Operator: Ladies and gentlemen, a replay will be available beginning at 1