[ad_1]
Diageo plc (LON: DGE) has announced its interim results for the six months ended December 31, 2020.
Financial highlights
• Reported net sales (£ 6.9bn) were down 4.5% as organic growth of 1.0% was more than offset by an unfavorable trade. Reported operating profit (£ 2.2bn) was down 8.3%, driven by unfavorable trade and a decrease in organic operating profit.
• Organic net sales increased 1.0%, despite the significant impact of Travel Retail and trade restrictions. North America rose 12.3%, offsetting declines in other regions except Africa, which was practically flat.
• North America’s growth was driven by resilient consumer demand, growth in the share of total alcoholic beverages, positive category mix, and replenishment of stock levels by distributors and retailers.
• Organic operating profit decreased 3.4%, driven by the mix of channels and categories. Productivity benefits of daily cost efficiencies largely offset cost of goods sold inflation
• Net cash from operating activities increased from £ 0.7bn to £ 2.0bn, and free cash flow from £ 0.8bn to £ 1.8bn. This primarily reflects a lower tax payment and a working capital benefit driven by the reduction in creditors’ balances at the end of fiscal year 20, as a result of reduced sales demand and cost control measures. activated in response to Covid-19. Creditors’ balances have now recovered to more normalized levels.
• The basic eps of 67.6 pence decreased 14.6%. Pre-exceptional eps declined 12.8% to 69.9 pence, driven primarily by unfavorable trade and lower operating profit.
• Interim dividend increased 2% to 27.96 pence per share.
• Strong sequential improvement in performance across all regions compared to the second half of fiscal 20. A continued impact is expected in the second half of fiscal 21 from trade restrictions and the disruption of travel retail.
Strategic and Operational Highlights in F21 H1
• Supported the recovery of the hotel sector through ‘Raising the Bar’, our two-year $ 100 million global program, which has already reached around 30,000 points of sale in seven countries.
• Responded quickly to increased consumer demand in the commercial channel, generating market share gains.
• Achieved broad-based growth in most categories, including tequila, gin, Canadian whiskey, American whiskey, spirits, and ready-to-drink beverages.
• Leveraged deep insight into consumer behavior, innovating across all of our brands to recruit new consumers and unlock new occasions in comfort and at home.
• Increased investment in digital capabilities, including e-commerce.
• Capex’s ongoing investment in capacity, consumer experiences, and sustainability.
• The acquisition of Aviation American Gin and Davos Brands was completed, further rewarding our portfolio.
• We leverage our built-in culture of daily efficiency to drive ongoing savings in productivity.
• We launched ‘Society 2030: Spirit of Progress’, our 10-year sustainability action plan, based on our strong track record in sustainability and responsibility.
Ivan Menezes, CEO, said:
“We achieved a strong performance in a challenging operating environment, returning to organic sales growth during the semester. We quickly pivot to the channels and occasions that are most relevant to consumers and invest in new opportunities. This more than offset the impact of trade restrictions and the decline in Travel Retail.
North America, our largest market, performed particularly solidly and above our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total alcoholic beverages. In other regions we obtained a strong sequential improvement compared to the second half of fiscal year 20. This reflects a better performance of the market share through excellent execution in the foreign trade channel and the partial reopening of the trade channel in certain markets.
Organic operating margin improved compared to the second half of fiscal 20 driven by higher operating leverage and tight control of discretionary spending. The decline compared to the first half of fiscal 20 reflected an adverse channel and portfolio mix. We expect margins to improve as travel retail and retail recover and with the continued benefit of daily efficiency.
Our proprietary tools and data-driven insights enable us to invest wisely in effective marketing and innovation. We continue to strengthen brand equity, premiumize our portfolio, and expand our digital capabilities.
I am proud of the creativity and adaptability of our people and their exemplary commitment to supporting our clients and communities. Our global commitment of $ 100 million to support the recovery of the hotel sector has already reached around 30,000 points of sale in seven countries. We expect continued 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.
