Interim results, six months ended 31 December 2021
27 January 2022
Diageo delivers strong net sales growth and margin expansion
Delivered strong net sales growth across all regions
- Reported net sales of £8.0 billion increased 15.8%, with strong organic growth, partially offset by an adverse foreign exchange impact.
- Organic net sales grew 20.0%, driven by strong double-digit growth across all regions, supported by effective marketing and excellent commercial execution.
- Growth reflects continued recovery in the on-trade, resilient consumer demand in the off-trade and market share gains, and was underpinned by favourable industry trends of spirits taking share of total beverage alcohol and premiumisation(i).
Expanded operating margin while increasing marketing investment
- Reported operating profit of £2.7 billion increased 22.5%, and reported operating margin increased 190bps, primarily due to growth in organic operating profit.
- Organic operating profit grew 24.7%, with growth across all regions.
- Organic operating margin increased 131bps, primarily driven by a strong recovery in gross margin and leverage on operating costs, while increasing marketing investment.
- Supply productivity savings and price increases more than offset the impact of cost inflation.
Delivered broad-based category growth and gained market share
- Broad-basedgrowth across most categories, with particularly strong performance in scotch, tequila and beer.
- Premium plus brands contributed 56% of reported net sales and drove 74% of organic net sales growth.
- Grew or held off-trade market share in over 85%(ii) of total net sales value in measured markets.
Invested to sustain long-term growth
- Organic growth in marketing investment of 27.0%, ahead of organic net sales growth.
- Continued capex investment in production capacity, digital capabilities and consumer experiences.
Delivered strong cash generation
- Net cash flow from operating activities decreased £0.1 billion to £1.9 billion, and free cash flow decreased £0.2 billion to £1.6 billion, primarily due to lapping an exceptionally strong working capital benefit in the first half of fiscal 21.
- Strong balance sheet, with leverage ratio(iii) of 2.5x at 31 December 2021, at the low end of our target range.
Continued progress in delivering Society 2030 goals
- Opened our first carbon-neutral whiskey distillery in North America and broke ground on a carbon-neutral distillery in China.
- Responsible drinking campaigns: launched 'Wrong Side of the Road' and continued roll out of 'Know When to Stop'.
- Included in Dow Jones World Sustainability Index for fourth consecutive year.
- Retained 'double A' status for both climate change and water security on CDP's lists.
Created long-term shareholder value
- Increased basic eps by 24.7% to 84.3 pence and pre-exceptional eps by 22.5% to 85.6 pence.
- Increased interim dividend by 5% to 29.36 pence per share.
- Completed £0.5 billion of share buybacks as part of return of capital programme of up to £4.5 billion.
- Accelerating timeline to complete return of capital programme during fiscal 23.
See page 47 for explanation and reconciliation of non-GAAP measures, including organic net sales, organic operating profit, free cash flow, eps before exceptionals, ROIC, adjusted net debt, adjusted EBITDA and tax rate before exceptional items.
- IWSR, 2021 (20 TBA markets, approximately 75% of industry TBA volume).
- Internal estimates incorporating AC Nielsen, Association of Canadian Distillers, Dichter & Neira, Frontline, Intage, IRI, ISCAM, NABCA, Scentia, State Monopolies, TRAC, IPSOS and other third-party providers. All analysis of data has been applied with a tolerance of +/- 3 bps. Percentages represent percent of markets by total Diageo net sales contribution that have held or gained off-trade share. India, Nigeria and Canada share data represents total trade. Measured markets indicate a market where we have purchased any market share data. Market share data may include beer, wine, spirits or other elements. Measured market net sales value sums to 87% of total Diageo net sales value in first half of fiscal 22.
- Ratio of adjusted net borrowings to adjusted EBITDA.
1 | Diageo Interim results, six months ended 31 December 2021 |
Ivan Menezes, Chief Executive, said:
I am very pleased with our financial results, which build on our growth momentum in fiscal 21. We delivered strong organic net sales growth across all regions and operating margin expansion. This performance demonstrates our world-class brand building capability, supply chain excellence and agile culture, and reflects the strength of our portfolio across geographies, categories and price tiers.
In the off-trade channel, where consumer demand has remained resilient, we have gained or held market share across the majority of our measured markets. We also benefitted from the continued recovery of the on-trade channel, particularly in Europe and North America.
Strong sales volume growth and continued premiumisation drove an improvement in organic operating margin during the half. This was achieved while increasing our investment in marketing to gain share and support innovation, particularly in North America and Greater China. In addition, our focus on revenue growth management and productivity savings are helping to mitigate the impact of cost inflation.
Strong cash flow generation is enabling re-investment in sustainable long-term growth. We are expanding our production capacity, enhancing our digital capabilities, investing in talent and progressing with our ambitious 10-year sustainability plan. During the half, we also returned £0.5 billion to shareholders via share buybacks and we are accelerating the timeline of our return of capital programme of up to £4.5 billion to now be completed during fiscal 23.
We have made a strong start to fiscal 22. While we expect near-term volatility to remain, including potential impacts from Covid-19, global supply chain constraints and rising cost inflation, I am confident in our ability to successfully navigate these disruptions through the remainder of the year. Over the medium-term, from fiscal 23 to fiscal 25, we continue to expect organic net sales to consistently grow within a range of 5% to 7% and organic operating profit to grow sustainably within a range of 6% to 9%.
Financial performance
Volume (equivalent units) | Operating profit | Earnings per share (eps) | |||||||
EU140.2m | £2,743m | 84.3p | |||||||
(F21 H1: EU 128.3 m) | (F21 H1: £2,239m) | (F21 H1: 67.6p) | |||||||
Reported movement | 9 % h | Reported movement | 23 % h | Reported movement | 25 % h | ||||
Organic movement(i) | 9 % | h | Organic movement(i) | 25 % h | Eps before exceptional items(i) | 22 % | h | ||
Net sales | Net cash from operating | Interim dividend | |||||||
activities | per share | ||||||||
£7,957m | £1,947m | 29.36p | |||||||
(F21 H1: £6,874m) | (F21 H1: £1,998m) | (F21 H1: 27.96p) | |||||||
Reported movement | 16 % | h | F22 H1 free cash flow(i) £1,575m | Increase | 5 % | h | |||
Organic movement(i) | 20 % | h | F21 H1 free cash flow(i) £1,753m | ||||||
- See page 47 for explanation and reconciliation of non-GAAP measures.
2 | Diageo Interim results, six months ended 31 December 2021 |
Key financial information
Six months ended 31 December 2021
Summary financial information
Organic growth | Reported growth | ||||
F22 H1 | F21 H1 | % | % | ||
Volume | EUm | 140.2 | 128.3 | 9 | 9 |
Net sales | £ million | 7,957 | 6,874 | 20 | 16 |
Marketing | £ million | 1,351 | 1,085 | 27 | 25 |
Operating profit before exceptional items | £ million | 2,743 | 2,256 | 25 | 22 |
Exceptional operating items(i) | £ million | - | (17) | ||
Operating profit | £ million | 2,743 | 2,239 | 23 | |
Share of associate and joint venture profit after tax | £ million | 190 | 154 | 23 | |
Non-operating exceptional items(i) | £ million | (31) | 5 | ||
Net finance charges | £ million | (180) | (200) | ||
Exceptional taxation (charge)/credit(i) | £ million | - | (42) | ||
Tax rate including exceptional items | % | 23.3 | 24.4 | (5) | |
Tax rate before exceptional items | % | 23.0 | 22.4 | 3 | |
Profit attributable to parent company's shareholders | £ million | 1,965 | 1,580 | 24 | |
Basic earnings per share | pence | 84.3 | 67.6 | 25 | |
Basic earnings per share before exceptional items | pence | 85.6 | 69.9 | 22 | |
Interim dividend | pence | 29.36 | 27.96 | 5 | |
- For further details on exceptional items see pages 22 and 34.
Reported growth by region
Operating profit before | |||||||||||||
Volume | Net sales | Marketing | exceptional items | Operating profit | |||||||||
% | EUm | % | £ million | % | £ million | % | £ million | % | £ million | ||||
North America | 1 | 0.3 | 10 | 263 | 24 | 105 | 6 | 69 | 6 | 69 | |||
Europe | 23 | 5.4 | 21 | 309 | 22 | 55 | 37 | 167 | 43 | 184 | |||
Asia Pacific | 4 | 1.7 | 10 | 136 | 16 | 36 | 17 | 65 | 17 | 65 | |||
Africa | 15 | 2.5 | 17 | 123 | 21 | 18 | 85 | 81 | 85 | 81 | |||
Latin America and Caribbean | 16 | 2.0 | 41 | 240 | 60 | 47 | 69 | 136 | 69 | 136 | |||
Corporate | - | - | 109 | 12 | 500 | 5 | (33) | (31) | (33) | (31) | |||
Diageo | 9 | 11.9 | 16 | 1,083 | 25 | 266 | 22 | 487 | 23 | 504 | |||
Organic growth by region
Operating profit before | |||||||||||
Volume | Net sales | Marketing | exceptional items | ||||||||
% | EUm | % | £ million | % | £ million | % | £ million | ||||
North America | 1 | 0.2 | 13 | 338 | 24 | 105 | 7 | 89 | |||
Europe | 23 | 5.4 | 27 | 389 | 26 | 65 | 42 | 184 | |||
Asia Pacific | 4 | 1.7 | 13 | 181 | 18 | 41 | 19 | 72 | |||
Africa | 16 | 2.6 | 23 | 166 | 28 | 23 | 85 | 88 | |||
Latin America and Caribbean | 16 | 2.0 | 45 | 258 | 65 | 50 | 80 | 152 | |||
Corporate | - | - | 109 | 12 | 133 | 4 | (36) | (35) | |||
Diageo | 9 | 11.9 | 20 | 1,344 | 27 | 288 | 25 | 550 | |||
First half of fiscal 19 to first half of fiscal 22 growth on a constant basis(i)
First half of fiscal 19 to first half of fiscal 22 Reported growth %(i)
First half of fiscal 19 to first half of fiscal 22 Growth on a constant basis %(i)
Net sales
North America | 26 | 34 |
Europe | 7 | 17 |
Asia Pacific | 10 | 14 |
Africa | 6 | 26 |
Latin America and Caribbean | 22 | 39 |
Corporate | (18) | (18) |
Diageo | 15 | 25 |
- For further details on first half of fiscal 19 to first half of fiscal 22 growth on a constant basis see pages 48-53. See page 47 for explanation and reconciliation of non-GAAP measures.
3 | Diageo Interim results, six months ended 31 December 2021 |
Net sales (£ million)
Reported net sales grew 15.8%
Organic net sales grew 20.0%
Reported net sales grew 15.8%, driven by strong organic growth, partially offset by unfavourable foreign exchange.
Organic net sales growth of 20.0% reflects organic volume growth of 9.3% and positive price/mix of 10.7%. All regions grew organic net sales, driven by the recovery of the on-trade channel, resilient consumer demand in the off-trade channel and market share gains. Growth was supported by favourable industry trends of spirits taking share of total beverage alcohol and premiumisation(i).
The positive price/mix benefit was primarily driven by mix, reflecting the strong growth of premium plus brands, particularly in scotch, tequila and Chinese white spirits, as well as the continued recovery of the on-trade channel in Europe and North America and the partial recovery of Travel Retail. There was also a price benefit, primarily from price increases in Latin America and Caribbean, Africa and North America.
Organic movement | |||||||||
(i | |||||||||
720 | 7,957 | ||||||||
6,874 | 624 | ||||||||
17 | |||||||||
(271) | (7) |
F21 H1 | Exchange(ii) | Acquisitions and | Reclassification(iii) | Volume | Price/mix | F22 H1 |
disposals |
- IWSR, 2021 (20 TBA markets, approximately 75% of industry TBA volume).
- Exchange rate movements reflect the adjustment to recalculate the reported results as if they had been generated at the prior period weighted average exchange rates.
- For the six months ended 31 December 2021, £7 million has been reclassified from cost of sales to excise duties.
Operating profit (£ million)
Reported operating profit grew 22.5%
Organic operating profit grew 24.7%
Reported operating profit increased 22.5%, primarily due to growth in organic operating profit. This was partially offset by the negative impact of adverse exchange rate movements.
Organic operating profit grew 24.7%, ahead of organic net sales growth, driven by growth across all regions.
5502,743
2,239 | 17 | 34 | |||||
- (10)
F21 H1 | Exceptional | Exchange | Acquisitions and | FVR(ii) | Organic | F22 H1 |
operating items(i) | disposals | movement |
- For further details on exceptional operating items see pages 22 and 34.
- Fair value remeasurements. For further details see page 22.
4 | Diageo Interim results, six months ended 31 December 2021 |
Operating margin (%)
Reported operating margin increased 190bps
Organic operating margin increased 131bps
Reported operating margin increased 190bps, primarily driven by an increase in organic operating margin.
Organic operating margin increased 131bps, primarily driven by a strong recovery in gross margin and leverage on operating costs, while increasing marketing investment. Latin America and Caribbean, Europe and Africa largely drove the operating margin improvement, partially offset by a decline in North America.
Gross margin increased 147bps, primarily driven by positive mix and improved fixed cost absorption from volume growth. Supply productivity savings and price increases more than offset the impact of cost inflation.
Organic movement 131 bps
147bps | 76bps | 34.5% | ||||||||||||
32.6% | 25bps | 5bps | 46bps | |||||||||||
(92)bps | ||||||||||||||
(17)bps
F21 H1 | Exceptional | Exchange | Acquisitions | Other(ii) | Gross margin | Marketing | Other | F22 H1 |
operating | and | operating | ||||||
items(i) | disposals | items |
- For further details on exceptional operating items see pages 22 and 34.
- Fair value remeasurements and reclassification. For the six months ended 31 December 2021, £7 million has been reclassified from cost of sales to excise duties. For further details on fair value remeasurements see page 22.
Basic earnings per share (pence)
Basic eps increased 24.7% from 67.6 pence to 84.3 pence
Basic eps before exceptional items(i) increased 22.5% from 69.9 pence to 85.6 pence
Basic eps increased 16.7 pence primarily driven by organic operating profit growth, partially offset by higher tax, and an unfavourable foreign exchange impact.
Basic eps before exceptional items increased 15.7 pence.
F21 H1 | Exceptional | Exchange | Acquisitions | Organic | Associates | Finance | Tax(v) | Share | Non- | FVR(vi) | F22 H1 |
items | on | and | operating | and | charges(iv) | buyback | controlling | ||||
after tax(ii) | operating | disposals(iii) | profit | joint | interests | ||||||
profit | ventures |
(i
- See page 47 for explanation of the calculation and use of non-GAAP measures.
- For further details on exceptional items see pages 22 and 34.
- Includes finance charges net of tax.
- Excludes finance charges related to acquisitions and disposals.
- Excludes tax related to acquisitions and disposals.
- Fair value remeasurements. For further details see page 22.
5 | Diageo Interim results, six months ended 31 December 2021 |
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Diageo plc published this content on 27 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 January 2022 07:08:19 UTC.