2021 Preliminary Results, year ended 30 June 2021
Diageo delivers strong growth in net sales, operating profit and cash generation and is well positioned for the future
Delivered strong net sales growth, particularly in North America, our largest market
- Reported net sales (£12.7 billion) increased 8.3%, with strong organic growth, partially offset by an adverse foreign exchange impact.
- Organic net sales growth of 16.0%, driven by growth across all regions and a benefit from lapping a reduction of inventory levels by our customers in fiscal 20.
- North America organic growth of 20.2%, reflecting resilient consumer demand, spirits taking share of total beverage alcohol and the replenishment of stock levels by distributors and retailers.
Operating profit growth ahead of net sales growth
- Reported operating profit (£3.7 billion) increased 74.6%, and reported operating margin increased by 1,112bps, primarily due to a significant reduction in exceptional operating items.
- Organic operating profit growth of 17.7%, following decline in fiscal 20, with growth in all regions except Europe and Turkey.
- Organic operating margin increased 46bps, driven by overhead efficiencies and lapping one-off expenses, partially offset by gross margin decline and upweighted marketing spend.
Responded to increased consumer demand in off-trade channel, gaining market share
- Broad-based growth across categories, including tequila, scotch, Chinese white spirits and Baileys.
- Held or grew off-trade market share in over 85%(i) of total net sales value in measured markets.
- On-trade significantly restricted in many markets due to Covid-19, particularly impacting beer in Europe.
Invested in long-term growth despite near-term uncertainty due to Covid-19
- Increased investment in marketing by 23%, ahead of organic net sales growth.
- Continued capex investment in capacity, digital capabilities, consumer experiences and sustainability.
- Expanded gin and ready to drink portfolios with acquisitions, including Aviation American Gin.
Maintained strong ESG and stakeholder focus
- ‘Raising the Bar,’ our $100 million global on-trade recovery fund, has already reached c.35,000 outlets in eleven countries.
- In this year''s survey of our people, 89% of respondents(ii) said they were proud to work for Diageo.
- 25 ambitious new goals in our ‘Society 2030: Spirit of Progress’, 10-year sustainability action plan, including net zero carbon emissions across our direct operations by 2030.
Excellent cash flow generation
- Increased net cash from operating activities by £1.3 billion to £3.7 billion, and free cash flow by £1.4 billion to £3.0 billion, driven by growth in operating profit, working capital management and a delayed 2019 dividend from associates, partially offset by an adverse foreign exchange impact.
- Strong balance sheet, with leverage ratio of 2.8x at 30 June 2021, back within our target range.
Created long-term shareholder value
- Increased basic eps by 89.4% to 113.8 pence and pre-exceptional eps by 7.4% to 117.5 pence.
- Increased recommended final dividend by 5% to 44.59 pence per share.
- Recommenced return of capital programme of up to £4.5 billion by the end of fiscal 24.
- Delivered 10-year annualised total shareholder return of 13%.
(i) Source: Internal estimates incorporating AC Nielsen, Association of Canadian Distillers, Dichter & Neira, Frontline, Intage, IRI, ISCAM, NABCA, Scentia, State Monopolies, TRAC 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 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 fiscal 21.
(ii) 85% of our global employees completed the survey.
Ivan Menezes, Chief Executive, said:
I am very pleased with the strong financial results we have delivered in fiscal 21, while continuing to invest in long-term sustainable growth. We delivered organic net sales growth across all regions, led by a strong performance in North America, and we held or gained off-trade market share in over 85%(i) of our business. These results demonstrate the strength and relevance of our brands and the extraordinary efforts of our talented people. I would like to thank all of my colleagues for their dedication and resilience, and to express my deepest condolences to all who have lost loved ones this year due to the pandemic.
I believe that our foundation, built through outstanding brand-building, active portfolio management, consumer-led innovation, smart investment in data analytics tools and embedding a culture of everyday efficiency, has been a key competitive advantage for Diageo. We were well-positioned to successfully manage the challenges created by Covid-19, we have responded quickly to changing consumer trends and we have emerged stronger.
A key priority has been supporting the hospitality sector through the pandemic, including our $100 million global fund to enable the safe re-opening and recovery of pubs and bars. We have also built on our successful ESG track record with the launch of ‘Society 2030: Spirit of Progress’, our new 10-year action plan to shape a more sustainable and inclusive business.
While our business has recovered strongly in fiscal 21, with net sales growth on a constant basis ahead of fiscal 19 in three of our five regions, we expect near-term volatility in some markets. However, I remain optimistic about the growth prospects for our industry, with spirits continuing to gain share of total beverage alcohol globally and premiumisation trends remaining strong. I believe Diageo is very well positioned to capture these exciting opportunities to drive long-term sustainable growth and shareholder value.