2022 Interim Results, half year ended 31 December 2021
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-based growth 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.
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.
(i) IWSR, 2021 (20 TBA markets, approximately 75% of industry TBA volume).
(ii) 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.
(iii) Ratio of adjusted net borrowings to adjusted EBITDA.
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%."