North America proves standout for Diageo sales
Johnnie Walker and Haig Club owner Diageo has pointed to “encouraging” signs as sales rebound in key global markets where Covid restrictions have eased or been less onerous.
Pre-tax profits in the six months to the end of December fell 8.3 per cent to £2.2 billion, driven by unfavourable exchange rates and a decline in organic operating profit.
While reported net sales were down 4.5 per cent to £6.9bn, organic net sales nudged up 1 per cent, despite a “significant” impact from the group’s travel retail arm as countries limited cross-border movement, and on-trade restrictions.
North America sales were up 12.3 per cent, helping to offset declines in other regions. There was also strong growth reported in Greater China and Australia in the first half.
In Europe and Turkey sales of Scotch fell 10 per cent and beer net sales slumped 34 per cent – driven primarily by Guinness as pubs and clubs faced either restrictions or closure – although the company pointed out that sales of Guinness draft in cans was up 24 per cent as consumers turned to drinking the iconic stout at home.
Ewan Andrew, president, global supply and procurement, said the group, which is Scotland’s biggest whisky producer by volume and also owns Bell’s, had served up an “encouraging performance in a challenging operating environment”.
He said Scotch sales in North America had proved to be resilient despite the introduction of a 25 per cent import tariff by the Trump administration and was hopeful of a “continued de-escalation” of the situation.
Group chief executive Ivan Menezes said: “I am proud of the creativity and adaptability of our people and their exemplary commitment to supporting our customers and communities. Our $100 million [£73m] 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.”
The interim dividend was increased by 2 per cent to 27.96p per share.
William Ryder, equity analyst at financial services group Hargreaves Lansdown, said: “Diageo has recorded organic sales growth, which is no mean feat given the disruption coronavirus has inflicted on the hospitality industry.
“Unfavourableexchangerate movements mean this underlying growth didn’t show up in the headline numbers, but it’s the figure to focus on.
“The next half’s sales are going to be flattered by the comparison with the start of the pandemic, but we’ll be focused on market share and underlying growth in key brands.”
Richard Hunter, head of markets at Interactive Investor, noted: “Diageo may not fully have lived up to its defensive qualities in times of economic stress, but has nonetheless provided grounds for optimism.
“The company remains profitable and cash rich, andshows confidence.”