Johnnie Walker’s glass – half full or half empty?
◆ Mixed first-half numbers for Diageo but Scott Reid finds Edinburgh’s Johnnie Walker Experience hailed a ‘tremendous success’
iageo’s glass may be looking half empty if City reaction to the whisky giant’s latest set of results is anything to go by but the Johnnie Walker maker remains a resilient investment, buoyed by a wide geographic spread, some slick marketing and a vast portfolio of iconic brands.
On the headline metrics alone, the firsthalf performance leaves a slightly bitter taste in the mouth. The Guinness and Gordon gin maker recorded an operating profit of $3.3 billion (£2.6bn) for the six months to the end of December, marking an 11.1 per cent drop compared with the same period a year earlier. That came as reported net sales slipped 1.4 per cent to $11bn (£8.7bn) on the back of unfavourable foreign exchange rates and a slump in sales through its Latin America and Caribbean division.
Diageo had already had a bumpy share ride last year before a November profit warning over the Latin American sales weakness clobbered the stock. The shares are down by 17 per cent or so over the last year, compared to a dip of 2 per cent for the wider FTSE100 index. But the group has a strong record of shareholder dividend pay-outs – with the interim divi hiked 5 per cent to 40.5 cents – and investment in its brands, and the hope is that the downturn in the Latin America and Caribbean market proves to be a blip. Those shares may have hit their nadir.
Management at the spirits heavyweight, which has almost 30 malt distilleries in Scotland and some 3,500 employees north of the Border out of a global workforce of around 30,000, remain upbeat.
Ewan Andrew, Diageo’s Scotsborn president for supply chain and procurement, pointed to good growth in Europe, Asia Pacific and Africa, with a “strong” underlying performance for Scotch whisky globally.
The latest results showed that revenues in the Latin America and Caribbean region slid by 23 per cent over the halfyear. Diageo, whose other global brands include Smirnoff vodka and Captain Morgan rum, said the drop was caused by weaker consumer demand and high inventory levels in the area.
But, elsewhere, there was a 10 per cent rise in net sales in Europe, despite declines in Eastern Europe. The group said it was buoyed by a strong performance in Great Britain and Ireland, where sales rose by 9 per cent and 10 per cent respectively. It reported continued strong sales of Guinness across Britain, with the drink remaining the UK’S most popular pint after knocking Carling off the pedestal last year. There was a 17 per cent jump in sales for Johnnie Walker across Europe during the
The spring Budget is very front of mind for us Ewan Andrew Chief supply chain officer, Diageo
half-year. Andrew said: “It is challenging for Diageo in our sector at the moment. Consumers are facing higher interest rates and higher prices and they are cautious but they are also still resilient.”
He described the flagship Johnnie Walker Experience on Edinburgh’s Princes Street, which has rejuvenated the old Frasers department store building, as a “tremendous success”, having now welcomed more than 700,000 visitors since it opened in 2021 – 50 per cent of whom are women or people who have never drunk whisky before. “It’s a major recruitment vehicle for Scotch in general and has proved to be a strong investment,” he noted.
Andrew also said the group would be pressing the Chancellor for further action to support the sector ahead of his March
Budget. “The spring Budget is very front of mind for us,” he said. “We were pleased to see the hold but now we are absolutely pushing for a cut in alcohol duty for the support of British bars and hospitality.”
Analysts appear split on the near-term prospects for the group following its lacklustre but largely predictable interim numbers.
Chris Beckett, head of equity research at Quilter Cheviot, said the figures reiterated what was flagged in November, with sales falling a little further than expected.
He noted: “Despite the enduring quality of the business, there is no getting away from the fact that these latest numbers are not good from Diageo. On the bright side, the long-term trends look intact. Consumers continue to turn to spirits
and that shift in behaviour has not fully played out yet.
“Subsequently, in key, growing markets, such as China and India, sales are growing robustly. While these won’t show up on the profit and loss statement immediately, there is a narrative in place for Diageo to return to growth and once again provide the reliable growth it has come to be known for.”
John Moore, senior investment manager at wealth firm RBC Brewin Dolphin, said the business was performing “comparatively well” away from the Latin American woes and against a challenging backdrop and tough year-on-year comparisons.
He added: “[This] statement provides greater clarity following the shock from Latin America last year, which will hopefully turn out to be a blip rather than an enduring problem. It’s been a difficult 12 months for Diageo, but there are reasons to be positive over the medium term. Longer term, the group remains very strong and well positioned to benefit from trends in the drinks and spirits industry, with ample room for growth in a highly fragmented market.”
Aarin Chiekrie, equity analyst at investment platform Hargreaves Lansdown, said: “The profit outlook remains murky for the second half, with markets now forecasting a small decline in operating profit. The medium-term looks slightly brighter, but improvements in the Latin American and Caribbean market will be key to future margin expansion, and to a large extent, that’s outside of Diageo’s control.”