Diageo records strong net sales growth and margin expansion

Diageo recorded net sales of £8.0 billion with an increase of 15.8% and growth in all regions and an increase in operating margin.

The findings, which the beverage giant detailed in its half-year results ended December 31, 2021, highlighted strong organic growth, partially offset by an unfavorable currency effect.

Diageo disclosed that its organic net sales increased 20.0%, driven by strong double-digit growth across all regions.

The company said in a statement that the growth reflected “the continued recovery in retail, resilient consumer demand in on-the-go and market share gains, and was supported by favorable trends in the spirits industry taking a share of total alcoholic beverages and premiumisation”. .

Interim results showed operating profit of £2.7 billion, up 22.5%, and the reported operating margin increased by 190 basis points, mainly due to the organic operating profit growth.

Organic operating profit increased by 24.7%, with growth in all regions while organic operating margin increased by 131 basis points, mainly due to a strong gross margin recovery and a leverage on operating costs, while increasing marketing investments.

According to the company: “supply productivity gains and price increases have more than offset the impact of cost inflation”.

JThe results show how widespread growth was seen across most categories, with particularly strong performance for Scotch, Tequila and Beer.

Premium plus brands contributed 56% of reported net sales and generated 74% of organic net sales growth.

The company revealed expects continued organic growth in marketing investments of 27.0%, ahead of organic growth in net sales as well as continued CAPEX investments in production capacity, digital capabilities and consumer experiences.

Net cash flow from operating activities decreased by £0.1 billion to £1.9 billion, and free cash flow decreased by £0.2 billion, primarily due to amortization of an exceptionally high working capital profit in the first half of FY21.

Diageo CEO Ivan Menezes said:
“In the non-commerce channel, where consumer demand remained resilient, we gained or maintained market share in the majority of our measured markets. We also benefited from the continued recovery of the horeca channel, particularly in Europe and North America.

The strong growth in sales volumes and the continued premiumization enabled an improvement in the organic operating margin during the semester. This was achieved while increasing our investments in marketing to gain market share and support innovation, particularly in North America and Greater China.

Menezes said, “Our focus on managing revenue growth and productivity savings helps mitigate the impact of cost inflation,” explaining that “strong cash flow generation allows for reinvestment in further growth. long-term sustainability”.

Diageo also plans to expand its production capacity, improve its digital capabilities and invest in talent while pursuing its ambitious 10-year sustainability plan.

Menezes added: “During the half-year, we also returned £0.5 billion to shareholders through share buybacks and we are accelerating the timing of our capital return program of up to £4.5 billion. which is now due to be completed in FY23” and hinted that the company is “off to a good start for FY22”.

He again stressed: “While we expect near-term volatility to persist, including potential impacts from Covid-19, global supply chain constraints and rising cost inflation , I am confident in our ability to successfully manage these disruptions throughout the year.. In the medium term, from FY23 to FY25, we continue to expect organic net sales to increase consistently within a range of 5% to 7% and that organic operating profit grows sustainably within a range of 6% to 9%”.

Sallie R. Loera