Diageo Shows Consistency
Driven by organic growth, Diageo has reported a 4.2% increase in net sales to £7.2 billion for the first half year ended 31 December 2019 and a 0.5% rise in operating profit to £2.4 billion, adversely impacted by unfavourable exchange, exceptional operating items and acquisitions and disposals. All regions contributed to the broad based organic net sales growth, up 4.2%, with organic volume up 0.2%
Organic operating profit grew 4.6%, ahead of organic net sales, driven by productivity benefits from everyday cost efficiencies and strong price/mix, partially offset by cost inflation and up-weighted marketing investment. Diageo continued to deliver consistently solid cash flow with net cash from operating activities at £1.3 billion, £0.3 billion lower than the prior period and free cash flow at £1.0 billion, £0.4 billion lower than the prior period largely due to one-off tax impacts and timing of tax payments.
Ivan Menezes, chief executive of Diageo, comments: “Diageo has delivered another good, consistent set of results in the first half, with broad based organic net sales growth across regions and categories. We have continued to increase investment behind marketing and growth initiatives, while expanding organic operating margins.”
Ivan Menezes, chief executive of Diageo.
During the half, Diageo returned £1.1 billion to shareholders via share buybacks, as part of its plan to return up to £4.5 billion of capital to shareholders for the financial period 2020 to 2022. We have also delivered another half of solid free cash flow at almost £1 billion.
Ivan Menezes elaborates: “These results reflect the changes we are making in the business to drive shifts in our culture. They are in line with our current mid-term guidance and have been delivered in the face of increased levels of volatility in India, Latin America and Caribbean and Travel Retail. For the full year, we therefore expect organic net sales growth to be towards the lower end of our 4 to 6% mid-term guidance range. We continue to expect organic operating profit to grow roughly one percentage point ahead of organic net sales.”
He adds: “There is ongoing uncertainty in the global trade environment and we would not be immune from further policy changes. We remain focused on building the long-term health of our brands, supported by data-led insights and a culture of everyday efficiency. With the consumer at the heart of the business and with greater agility and discipline in the execution of our strategy, we are growing Diageo in a consistent, sustainable way.”
In Europe, Diageo’s net sales were up 3% and 2% on a reported basis to £1.666 billion and operating profit was flat at £615 million. In Great Britain, net sales grew 2%. Performance was mainly driven by Guinness, Baileys and Captain Morgan, partly offset by a decline in Gordon’s due to lapping a strong prior year innovation, and the continued impact of commercial negotiations following prior year pricing decisions. Guinness performance benefited from growth of Guinness Draught in the on-trade and key digital activations targeting specific after-work occasions. Baileys’ strong performance was driven by focused promotional activity, while Captain Morgan’s growth was due to strong on-trade performance.
In Ireland net sales declined by 1%. Beer was down 2% with Guinness flat and a decline in other lager brands partially offset by the continued success of Diageo’s Rockshore Lager and Rockshore Cider innovations. Spirits grew 1%, driven by vodka and rum.
Net sales in Continental Europe were up 5%. In Iberia net sales grew 1%, driven by positive price/mix and improvements in Scotch and tequila. In Central Europe net sales grew 12%, benefiting from lapping a soft prior year. Strong Scotch performance was due to effective Johnnie Walker activations and the ‘Game of Thrones Single Malt Scotch Whisky Collection’. Baileys also contributed to the growth on the back of key outlet activations.
