Diageo delivers strong cash generation and is well positioned for future growth despite challenging first half environment
- Reported net sales of $11.0 billion declined 1.4% or $158 million, due to a $167 million unfavourable foreign exchange impact and an organic net sales decline of $67 million or 0.6%, driven by a $310 million or 23% decline in Latin America and Caribbean (LAC).
- Excluding the impact of LAC, reported net sales grew $72 million or 0.7%, and organic net sales grew $243 million or 2.5%, driven by Asia Pacific, Africa and Europe, partially offset by a $64 million or 1.5% decline in North America which improved sequentially from the second half of fiscal 23.
- The decline in LAC was driven by a strong double-digit net sales growth comparator as well as lower consumption and consumer downtrading due to macroeconomic pressures in the region.
- Reported operating profit declined 11.1% to $3.3 billion, and reported operating profit margin contracted 329bps due to lower organic operating margin and a negative impact from exceptional operating items.
- Organic operating profit declined by $205 million or 5.4%, of which $234 million was attributable to LAC; organic operating margin contracted 167bps.
- Excluding the impact of LAC, organic operating profit grew by $29 million or 0.9%, and organic operating margin contracted 53bps, driven by increased marketing investment.
- Net cash flow from operating activities increased by $0.7 billion to $2.1 billion. Free cash flow increased by $0.5 billion to $1.5 billion, driven by disciplined working capital management and the positive impact of lapping one-off cash tax payments from the prior year.
- Declared interim dividend increased by 5% to 40.50 cents per share. Completed $0.5 billion of share buybacks as part of the return of capital programme announced on 1 August 2023.
Debra Crew, Chief Executive, said:
The first half of fiscal 24 was challenging for Diageo and our sector, particularly as we lapped strong growth in the prior year and faced an uneven global consumer environment. Excluding LAC, our group organic net sales grew 2.5%, driven by good growth in Europe, Asia Pacific and Africa. While North America delivered sequential improvement in line with our expectations, we are focused on returning to high-quality share growth as consumer behaviour continues to normalise in our largest region.
As previously announced in November 2023, materially weaker performance in LAC, driven by fast-changing consumer sentiment and high inventory levels, significantly impacted total business performance. Having conducted a review of inventory levels and monitored performance in the critical holiday season, we have taken action and have further plans to reduce inventory to more appropriate levels for the current consumer environment in the region by the end of fiscal 24. This is a key priority.
With a strong focus on execution, we delivered an improved free cash flow of $1.5 billion, and our pipeline of productivity initiatives in the first half of fiscal 24 drove $335 million of savings, helping us to sustain investment in brand building. During the half, we returned $0.5 billion to shareholders via share buybacks as part of our commitment to return up to $1.0 billion of capital to shareholders in fiscal 24. We declared an interim dividend increase to 40.50 cents per share, reflecting our commitment to a progressive dividend policy.
Looking ahead to the second half of fiscal 24, despite continued global economic volatility, we expect to deliver improvement in organic net sales and organic operating profit growth at the group level, compared to the first half. While the macro environment will continue to present challenges, I am confident that we remain well-positioned and resilient for the long term. We are diversified by category, price point and region and will continue to invest behind our iconic brands to maintain our position as an industry leader in total beverage alcohol, an attractive sector with a long runway for growth.