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Diageo delivers strong net sales growth and margin expansion

Diageo has reported net sales of £8.0 billion with an increase of 15.8% and growth across all regions and operating margin expansion.

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The findings, which the drinks giant detailed in its interim results six months ended 31 December 2021, highlighted strong organic growth, partially offset by an adverse foreign exchange impact.

Diageo revealed organic net sales grew 20.0%, driven by strong double-digit growth across all regions.

The company said in a statement that the growth reflected “continued recovery in the on-trade, resilient consumer demand in the off-trade and market share gains, and was underpinned by favourable industry trends of spirits taking share of total beverage alcohol and premiumisation”.

The interim results reported operating profit of £2.7 billion, showing an increase of 22.5%, and reported operating margin had increased 190bps, primarily due to growth in organic operating profit.

Organic operating profit grew 24.7%, with growth across all regions while organic operating margin increased 131bps, primarily driven by a strong recovery in gross margin and leverage on operating costs, while increasing marketing investment.

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

The results show how broad-based growth was seen across most categories, with a particularly strong performance in Scotch, Tequila and beer.

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

The company revealed plans for it to continue organic growth in marketing investment of 27.0%, ahead of organic net sales growth as well as continued CAPEX investment in production capacity, digital capabilities and consumer experiences.

Net cash flow from operating activities decreased £0.1 billion to £1.9 billion, and free cash flow decreased £0.2 billion primarily due to lapping an exceptionally strong working capital benefit in the first half of fiscal 21.

Diageo chief executive Ivan Menezes said:
“In the off-trade channel, where consumer demand has remained resilient, we have gained or held market share across the majority of our measured markets. We also benefitted from the continued recovery of the on-trade channel, particularly in Europe and North America. 

Strong sales volume growth and continued premiumisation drove an improvement in organic operating margin during the half. This was achieved while increasing our investment in marketing to gain share and support innovation, particularly in North America and Greater China.”

Menezes said: “Our focus on revenue growth management and productivity savings are helping to mitigate the impact of cost inflation,” explaining that “strong cash flow generation is enabling re-investment in sustainable long-term growth”.

Diageo has further plans to expand its production capacity, enhance its digital capabilities and invest in talent while progressing with its ambitious 10-year sustainability plan. 

Menezes added: “During the half, we also returned £0.5 billion to shareholders via share buybacks and we are accelerating the timeline of our return of capital programme of up to £4.5 billion to now be completed during fiscal 23” and hinted that the company has “made a strong start to fiscal 22”.

He re-emphasised : “While we expect near-term volatility to remain, including potential impacts from Covid-19, global supply chain constraints and rising cost inflation, I am confident in our ability to successfully navigate these disruptions through the remainder of the year. Over the medium-term, from fiscal 23 to fiscal 25, we continue to expect organic net sales to consistently grow within a range of 5% to 7% and organic operating profit to grow sustainably within a range of 6% to 9%”. 

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