Diageo Operating Orofit Drops 47% in “year of two halves”

Diageo has reported an 8.4% decline in organic net sales in what it describes as a “year of two halves” due to the significant impact of Covid-19 in its second half. For the year to the end of June, Diageo posted net sales of £11.75 billion as demand for its whisky, gin and vodka fell in all markets except North America. North America, Diageo’s largest segment, was the only region to show promise with sales rising 2% and growth in all three markets; US Spirits, Diageo Beer Company USA and Canada. Strong net sales growth in the first half of the year was only partially offset by lower on-trade sales in the second half. The company’s tequila brands continued to see strong growth at 25%, reflecting double-digit growth of Don Julio and Casamigos. RTDs also grew at 8% with Smirnoff Ice flavour innovations such as Smash and Seltzers contributing to the category’s solid performance. Despite a strong performance in China in its last year results, organic sales in Asia were the most impacted, falling by 16%. This was driven by on-trade closures particularly in India, Thailand and Greater China, which saw the absence of its New Year celebrations and significant declines in its white spirits. Europe and Turkey net sales fell 12% with beer sales particularly impacted by lockdown closures and sport event cancellations leading to a 20% decline. Africa fell 13%, while the company’s Latin America and Caribbean market dropped by 15%. Reported operating profit fell 47.1% to £2.1 billion driven by exceptional operating items and organic net sales. The owner of Johnnie Walker and Captain Morgan took a £1.3 billion writedown related to its businesses in India, Nigeria, Ethiopia and the Windsor whisky brand in South Korea which it says reflects challenging trading conditions amid Covid-19. Ivan Menezes, CEO of Diageo, said: “Fiscal 20 was a year of two halves: after good, consistent performance in the first half of fiscal 20, the outbreak of Covid-19 presented significant challenges for our business, impacting the full year performance. “While the trajectory of the recovery is uncertain, with volatility expected to continue into fiscal 21, I am confident in our strategy, the resilience of our business and am very proud of the way our people have responded. We are well-positioned to emerge stronger.” However, given the continued uncertainty, Diageo is not providing any financial guidance for the year ending 30 June 2021.