finance

Diageo sees sales and profits hit by travel restrictions and exchange rates



Spirits giant Diageo has reported a 4.5% fall in net sales to £6.9bn, as organic growth was more than offset by unfavourable exchange rates.

Operating profit also declined by 8.3% to £2.2bn for the six months ended 31 December 2020.

Organic net sales were up by 1%, despite a significant impact from the lack of travel retail and trade restrictions. North America was up 12.3%, offsetting declines in other regions.

Net cash from operating activities up £700m to £2bn, with free cash flow up £800m to £1.8bn.

This primarily reflected a lower tax payment and working capital benefit driven by reduced creditor balances, as a result of reduced sales demand and cost control measures triggered in response to Covid-19.

The interim results suggested “broad-based growth across most categories”, including tequila, gin, Canadian whisky, US whiskey, liqueurs and ready to drink spirits.

Diageo chief executive Ivan Menezes called it a strong performance in a challenging operating environment.

“We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities – this more than offset the impact of on-trade restrictions and the decline in travel retail.

“We expect ongoing 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,” he added.

Commenting on the results, Third Bridge analyst Ross Hindle said that Diageo is struggling to successfully tap into today’s international trend for home drinking.

“Their portfolio is heavily weighted towards mainstream spirits, a sub-category where consumer demand remains subdued.”

“Diageo has a good presence in the off-trade, where much of today’s alcohol sales are being made, but they are struggling to realise the volume of sales that beers, wines and mixers are achieving.”

“Diageo will be desperate for on-trade sales demand to return to pre-Covid levels, but the insiders we’re speaking to are warning this might not happen until 2024.”



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.  Learn more