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Diageo shows strong performance assisted by Scotch, Tequila and beer

Diageo has delivered strong net sales growth across all regions in its preliminary results, year ended 30 June 2022.

The UK drinks giant reported net sales of £15.5 billion, up 21.4%, primarily driven by strong organic net sales growth, up 21.4%, with strong double-digit growth across all regions. Growth was broad-based across categories, with particularly strong growth of Scotch, Tequila and beer. Also supporting its growth, Diageo’s “premium-plus” brands contributed 57% of reported net sales and drove 71% of organic net sales growth.

According to the company, its growth reflects “continued recovery of 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 results revealed expanded operating margin while increasing marketing investment with the drinks firm reporting operating profit of £4.4 billion, up 18.2%, primarily driven by organic operating profit growth.

Additionally, Diageo’s reported operating margin decreased, with organic margin expansion more than offset by exceptional operating items of £388 million.

According to the results, organic operating profit grew 26.3%, with growth across all regions and organic operating margin increased, reflecting a strong recovery in gross margin and leverage on operating costs, while increasing marketing investment.

The results showed that price increases and supply productivity savings more than offset the impact of cost inflation, and “mostly” offset the adverse impact on gross margin. Off-trade market share grew or held in over 85% of total net sales value in measured markets.

The drinks company strengthened its portfolio through acquisitions and disposals. One example saw Diageo recently acquire 21Seeds, a rapidly growing flavoured Tequila brand, and Mezcal Unión, a premium artisanal mezcal brand. Diageo also disposed of Meta Abo Brewery in Ethiopia and it’s Picon brand; signed agreements for the sale of the Windsor business in Korea and the disposal and franchising of a portfolio of brands in India.

The company also invested £1.1 billion of CAPEX in production capacity, sustainability, digital capabilities and consumer experiences.

The results revealed that net cash flow from operating activities increased £0.3 billion to £3.9 billion, and free cash flow decreased £0.3 billion to £2.8 billion, which Diageo said is “due to lapping an exceptionally strong working capital benefit in fiscal 21”.

Diageo chief executive Ivan Menezes said: “I am very pleased with our fiscal 22 results. We delivered double-digit organic net sales growth across all regions and we gained or held off-trade market share in over 85% of our total net sales value in measured markets. We expanded operating margin while increasing marketing investment ahead of net sales growth and we used our strong cash generation to invest in long-term growth. I am very proud of what my 28,000 colleagues have achieved through their energy and creativity.”

Menezes said that showing double-digit volume growth during a year of significant global supply chain disruption demonstrates Diageo’s “tremendous agility and resourcefulness” and said he is “particularly proud of the performance of Johnnie Walker, which delivered double-digit growth across all regions to surpass 21 million cases globally”.

Looking ahead Menezes said he expects the operating environment to be “challenging, with ongoing volatility related to Covid-19, significant cost inflation, a potential weakening of consumer spending power and global geopolitical and macroeconomic uncertainty”.

However, despite the challenges the company faces, Menezes stated he is “confident in the resilience of our business and our ability to navigate these headwinds” and revealed that Diageo is “making good progress towards our ambition of delivering a 50% increase in our value share to 6% by 2030”.

Menezes added: “Despite the challenging environment, we are executing our strategic priorities, including our ambitious 10-year sustainability plan. I am confident that we are well-positioned to deliver our medium-term guidance for fiscal 23 to fiscal 25 of organic net sales growth consistently in the range of 5% to 7% and organic operating profit growth sustainably in the range of 6% to 9%.”

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