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CNBC Interview with Diageo CEO Ivan Menezes

Following are excerpts from a CNBC interview with Ivan Menezes, Diageo's CEO and Sri Jegarajah.

SJ: Okay, let's bring in the CEO of Diageo, Ivan Menezes joins us now. Ivan, thank you very much indeed for joining us, and good to see you. Just, let's start with the sales outlook for the world, and, if I can focus in on Asia, just how robust is the outlook shaping up to be? Because I know that last year, you did have some one-off problems in India and China.

IM: Overall, good morning, I'm very pleased with these results Numbers are strong right through the P&L. We grew the topline, globally, organically 4.2%, but, underlying that growth is a very broad-based performance. Our global brands, like Johnnie Walker, Guinness, Captain Morgan, all grew 5%, as a group. Our reserve brands, the high-end of our portfolio, grew 11%. Each region around the world was in growth. To your point, in Asia, we're seeing terrific growth in China, both on Chinese white spirits and on scotch whiskey. India is very solid, there have been some external disruptions in the market, but our business continues to go from strength to strength. The US has performed solidly, Europe grew 4%, our beer business is in good health, so I'm very pleased with the broad-based momentum on the business.

SJ: Are you concerned about the uptick in trade tensions that we've been hearing about, particularly with the US and China seemingly butting heads on trade issues? To what degree could that-, that hurt the outlook for you, over at Diageo?

IM: Well, I hope not much. You know, Diageo's is the-, we're a classic global exporting, trading companies. Johnnie Walker is consumed and enjoyed in 180 countries around the world. We've worked through trade arrangements over the decades, indeed centuries. I remain confident, what we're seeing in the world today is improving GDP growth, the emerging markets are improving, through Europe, we continue to trade very nicely, so I remain confident that our business, and scotch whiskey, in particular, which is our main category, will have a fair runway to trade around the world, and continue to prosper and grow.

SJ: And if the economic fundamentals, globally, are looking so good, Ivan, then can I ask you a question on pricing power? Have you got it? And does it mean that this synchronized global expansion that we are seeing means that you can charge higher prices for your whiskeys and your Guinness, etc.?

IM: Well, the phenomenon that's really working in our favor is, people around the world are drinking better. So, if you look at the United States, Johnnie Walker Blue Label, which is over $200 a bottle, is growing double-digit. The same is true in Europe, the same is true in China. In these results, where we grew 4.2%, volume grew about 2%, and then we had over 2% of price and mix benefit. So, we do take price, and I would expect price, and mix, people drinking better, to continue to be a very positive force for us.

SJ: And you've been keeping, operationally, a very tight lid on costs, Ivan. But commodity prices are rising across the spectrum. Does that mean a rising input costs, as well? And where does that leave margins?

IM: Well, as you saw in these results, we expanded our operating margins over 80 basis points while we increased our marketing investment substantially. What I'm really pleased about is our productivity and efficiency programs are delivering benefit right across the business. Yes, we do have commodity inflation, but we have productivity programs that are offsetting that, all lines of cost in the business are coming down, and we have a continued focus on efficiency. Because Diageo's strength is about topline growth and efficiency, I call it 'the perfect blend', and we will continue to drive both strongly, and that gives us the fuel to reinvest in marketing, in innovation, in opening new distilleries. We've-, we've reopened two distilleries in Scotland, Brora and Port Ellen, we're expanding capacity in the United States on bourbon, we are investing in beer in Africa, opening a new brewery in Kenya. This is the model for us, because there is good growth to be had in our sector, and we have a very strong portfolio of brands, categories and geographies, where we can ride the volatility in the world, and deliver consistent, resilient performance.

SJ: Sir, I can't let you go without talking about tequila, I know it's a bit too early in the morning for a glass or two, but Casamigos. Why do you need two tequila brands, when you already have Don Julio? Isn't there a risk that you're going to be cannibalizing sales?

IM: I couldn't be more delighted with having Don Julio and Casamigos in the portfolio. A couple of things. One is, the high end of tequila is really accelerating very strong in the United States. The trends are going, outside the US, as well. Very strong in Mexico. In the results we posted, our tequila business grew 43%. Don Julio and Casamigos are positioned beautifully at the high end of tequila, and, in fact, if you look at the Nielson consumer off-take data, Casamigos grew 70% in-, in this period. These are very profitable businesses, and the trend to drinking better is very alive and strong in the tequila category. So, I am delighted that we've got these two jewel brands, both of which are accelerating and performing very strongly.

SJ: Very good talking to you, sir, we'll leave it there. Thank you very much for your time today. I've been talking to Ivan Menezes, the CEO of Diageo.

ENDS