Diageo shows solid performance in half-year results

UK drinks giant Diageo has shown a strong performance in its half-year results, with a rise in net sales and growth across all regions. 

The drinks company known for brands such as Johnnie Walker, Guinness, Tanqueray and Smirnoff, reported net sales of £9.4 billion, increased 18.4%, primarily reflecting strong organic net sales growth as well as favourable impacts from foreign exchange, mainly due to the strengthening of the US dollar.

Growth was delivered across most categories, primarily Scotch, Tequila and beer, while Diageo’s “premium-plus brands” contributed 57% of reported net sales and drove 65% of organic net sales growth.

Organic net sales grew 9.4%, with growth in all regions. Price/mix of 7.6 percentage points reflects a high single-digit price contribution to net sales growth, premiumisation and organic volume growth of 1.8%.

According to Diageo, growth was enabled by its diversified footprint, advantaged portfolio, strong brands and underpinned by favourable industry trends of premiumisation.

Diageo chief executive Ivan Menezes said: “We have made a strong start to fiscal 23. Organic net sales grew 9%, with growth across all regions, organic volume grew 2%, and organic operating profit grew 10%. In a challenging cost environment, our organic operating margin increased 9 basis points whilst we also continued to invest for the future.”

Menezes highlighted how the company had grown and showed gratitude for his team and their continued efforts. He stated: “Today, Diageo is 36% larger than it was prior to Covid-19, reflecting the strength of our diversified footprint and advantaged portfolio. I want to thank my nearly 28,000 colleagues for their tireless work, focus and agility which has helped us to achieve these results.”

Menezes explained: “Sales growth was supported by our continued focus on premiumising our portfolio, bolstered by strong global premiumisation trends, with our super-premium-plus brands growing organic net sales 12%” and outlined how “as category growth trends continue to normalise following Covid-19, winning quality market share remains a key focus.”

Diageo identified how it has continually optimised its portfolio through acquisitions and disposals. These include having acquired Mr Black, a leading Australian premium-priced coffee liqueur, and Balcones Distilling, a Texas craft distiller and one of the leading producers of American single malt whisky.

Additionally, the company also name-checked its recent agreement to acquire the Don Papa rum brand as well as plans to dispose of Guinness Cameroon S.A. as well as peach schnapps brand Archers and a portfolio of brands in India as being instrumental to its success.

The results show how Diageo has gained or held share in 75% of total net sales value in its measured markets as well as having delivered targeted price increases across all regions.

Menezes added: “We are investing in world-class brand building, digital and data capabilities and our ambitious 2030 sustainability plan to create a stronger and more resilient business for the long-term. As we look to the second half of fiscal 23, whilst the operating environment remains challenging, I remain confident in the resilience of our business and our ability to navigate volatility. We believe we are well-positioned to deliver our medium-term guidance of consistent organic net sales growth in the range of 5% to 7% and sustainable organic operating profit growth in the range of 6% to 9% for fiscal 23 to fiscal 25.”

Commenting on the results, Edison Group director of content and strategy Neil Shah said: “The glass remains more than half full for Diageo after a strong set of results in the face of industry inflation” and highlighted that “shareholders will raise a glass at the company’s pledge to return up to an addition £0.5bn of capital to shareholders in fiscal year 2023”.

Reviewing Diageo’s performance, Charlie Huggins, head of equities at Wealth Club said: “This is a solid performance from Diageo, underlining the strength and diversity of its brand portfolio. While not immune from economic headwinds and inflationary pressures, Diageo looks better placed than most to weather the storm. It is much easier to raise prices on a bottle of Johnnie Walker than on a bottle of shampoo or deodorant. So Diageo ought to have more pricing power than most consumer goods peers. This is a key reason for its resilient margins.”

Huggins added: “If the economy hits the rocks, Diageo may see some downtrading to less expensive brands. But it’s unlikely consumers will cut back significantly on alcohol. And long-term premiumisation trends are unlikely to abate. Overall, Diageo is demonstrating why it is considered a high quality long-term compounder. While short-term blips can’t be ruled out, investors who abide by the famous Guinness slogan – ‘Good things come to those who wait’ – could be rewarded.”