Guinness manufacturer Diageo has published its 2021 interim results which cover the half year period that ended on December 31, 2020.
The company's reported net sales were down 4.5% in the period to £6.9 billion, as organic growth of 1.0% was more than offset by unfavourable exchange.
Reported operating profit declined by 8.3% to £2.2 billion, driven by unfavourable exchange and a decline in organic operating profit.
Organic net sales were up by 1.0%, despite a significant impact from travel retail and on-trade restrictions. North America was up 12.3%, offsetting declines in other regions, except for Africa, which was broadly flat.
North America growth was driven by resilient consumer demand, share growth of total beverage alcohol, positive category mix and the replenishment of stock levels by distributors and retailers.
Organic operating profit was down by 3.4%, driven by channel and category mix. Productivity benefits from everyday cost efficiencies largely offset cost of goods sold inflation.
Net cash from operating activities was up £0.7 billion to £2.0 billion, and free cash flow was up £0.8 billion to £1.8 billion. This primarily reflects a lower tax payment and working capital benefit driven by reduced creditor balances at the end of fiscal 20, as a result of reduced sales demand and cost control measures triggered in response to the COVID-19 pandemic. Creditor balances have now recovered to more normalised levels.
Basic earnings per share (EPS) of 67.6 pence decreased 14.6%. Pre-exceptional EPS declined by 12.8% to 69.9 pence, driven primarily by unfavourable exchange and lower operating profit.
The company's interim dividend increased by 2% to 27.96 pence per share.
Diageo said that it had a strong sequential performance improvement in all regions compared to the second half of fiscal 20, and it is expecting continued impact in the second half of fiscal 21 from on-trade restrictions and disruption to travel retail.
Diageo chief executive Ivan Menezes stated, "We delivered a strong performance in a challenging operating environment, returning to top line organic sales growth during the half. We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in travel retail.
"North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol. Across other regions we delivered strong sequential improvement compared to the second half of fiscal 20. This reflects improved market share performance through excellent execution in the off-trade channel, and the partial reopening of the on-trade channel in certain markets.
"Organic operating margin improved compared to the second half of fiscal 20 driven by increased operating leverage and tight control of discretionary expenditure. The decline compared to the first half of fiscal 20 reflected an adverse channel and portfolio mix. We expect margins to improve as the on-trade and travel retail recover and with the continued benefit of everyday efficiency.
"Our proprietary tools and data-led insights are enabling us to invest smartly in effective marketing and innovation. We continue to strengthen brand equity, premiumise our portfolio and expand our digital capabilities.
"I am proud of the creativity and adaptability of our people and their exemplary commitment to supporting our customers and communities. Our $100 million global commitment to support the recovery of the hospitality sector has already reached around 30,000 outlets in seven countries. We expect ongoing volatility and disruption in the second half of the year, particularly in the on-trade channel, which will make performance more challenging. The medium and long-term growth drivers and opportunities for our business remain intact and I am confident in our strategy, the resilience of our business and Diageo's ability to emerge stronger."
© 2021 Hospitality Ireland – your source for the latest industry news. Article by Dave Simpson. Click subscribe to sign up for the Hospitality Ireland print edition.