Diageo’s organic net sales up 1% despite profit fall

Drinks giant Diageo has reported a 1% rise in organic net sales in its half-year results to 31 December 2020, despite an 8.3% decline in its operating profit.

The company reported a 4.5% drop in net sales to £6.9 billion, which it put down to unfavourable exchange rates. Its operating profit, meanwhile, was down by 8.3% to £2.2 billion due to a 3.4% decline in organic operating profit.

Among its best performing markets in the last six months was North America, where sales were up by 12.3% due to strong consumer demand, surpassing the firm’s growth expectations. The company’s interim dividend increased by 2% to 27.96 pence per share.

Diageo continues to be impacted by the closure of the on-trade in many countries around the world and the halting of the travel retail market due to ongoing travel restrictions.

“We delivered a strong performance in a challenging operating environment, returning to top line organic sales growth during the half.

“We rapidly pivoted to the channels and occasions most relevant to consumers and invested in new opportunities. This more than offset the impact of on-trade restrictions and the decline in travel retail,” said Diageo’s CEO, Ivan Menezes.

“North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol.

“Across other regions we delivered strong sequential improvement compared to the second half of fiscal 20. This reflects improved market share performance through excellent execution in the off-trade channel, and the partial re-opening of the on-trade channel in certain markets.

“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,” he added.

Diageo’s $100 million global commitment to supporting the recovery of the hospitality sector has reached around 30,000 outlets in seven countries.

In Great Britain, net sales were up by 2% off the back of a strong off-trade performance, with Diageo growing its value sales in the retail arena by 30%.

“We have responded to a challenging operating environment with agility, using insights and data to pivot to changes in consumer occasions and behaviours.

“We delivered strong market share gains in the GB off-trade across all categories. Johnnie Walker, Bell’s, Bulleit, Haig Club, Singleton and Talisker all increased market share,” said Dayalan Nayager, managing director at Diageo Great Britain.

“Innovation remained a key focus, with 43% of all spirits innovation in Great Britain coming from Diageo in the half. Gordon’s 0.0% hit the shelves in December, providing consumers with choice for different occasions.

“In line with the trend towards cocktails at home, we launched Captain Morgan Tiki, a lower ABV variant for the growing early evening occasion, and two premix cocktails: Gordon’s Pink Martini and Smirnoff Passion Fruit Martini,” he added.

Online sales in GB were also strong, with net sales up 100%, fuelled by the launch of a dedicated whisky store for Diageo brands on Amazon UK.