Global drinks group Diageo today reported preliminary results for the year ended 30 June, with net sales falling by -8.7% to £11.8 billion. Travel retail in all regions was sharply affected by the decline in travel caused by the COVID-19 pandemic (more in regional commentaries below).
Reported operating profit of £2.1 billion declined by -47.1%, driven mainly by exceptional operating items and a fall in organic net sales (-8.4%). Organic volumes dipped by -11.2%.
Chief Executive Ivan Menezes said: “Fiscal 20 was a year of two halves: after good, consistent performance in the first half of fiscal 20, the outbreak of COVID-19 presented significant challenges for our business, impacting the full year performance.
“The actions we have taken to strengthen Diageo over the last six years provide a solid foundation to respond to the impacts of the pandemic. We are now a more agile, efficient and effective business.
“We have taken decisive action through the second half of fiscal 20, tightly managing our costs, reducing discretionary expenditure and reallocating resources across the group. We are further enhancing our data analytics and technology tools to rapidly respond to local consumer and customer shifts triggered by the pandemic. We have strengthened liquidity, giving us flexibility to continue to invest effectively in the business for the long term.
“While the trajectory of the recovery is uncertain, with volatility expected to continue into fiscal 21, I am confident in our strategy, the resilience of our business and am very proud of the way our people have responded. We are well-positioned to emerge stronger.”
Performance by region
North America delivered net sales growth of +2%, with growth in all three key markets: US Spirits, Diageo Beer Company USA and Canada.
Strong net sales growth in the first half of the year was only partially offset by lower on-trade sales in the second half. This reflected strong demand in the off-trade channel during COVID-19. US Spirits net sales increased +2%. Tequila net sales grew +36% reflecting strong double-digit growth in Don Julio and Casamigos throughout the year.
Crown Royal net sales increased +8% while Scotch net sales declined -9%. Good growth in malts was offset by lower sales of Johnnie Walker, as a result of the on-trade channel closure in the second half and compared to the prior year success of the White Walker line extension. Vodka net sales declined -7% due to lower sales of Smirnoff, Ketel One and Cîroc. Bulleit net sales increased +4% while Captain Morgan net sales decreased -5%.
Asia Pacific net sales declined by -16%, including a -46% fall in net sales in Travel Retail Asia and Middle East, as traveller number fell sharply amid the crisis.
Despite growth in the first half for the region, all markets other than Australia declined due to the impact of COVID-19. Greater China declined -7% as Scotch, liqueurs and beer growth was offset by declines in Chinese white spirits. Australia net sales grew +6%, driven by ready to drink, liqueurs, gin and scotch. India net sales declined -17%, driven by the continued economic slowdown exacerbated by lockdowns impacting both Prestige and Above and Popular segments.
South East Asia declined -23%, while North Asia declined -15%, driven by a double-digit decline in Scotch, partially offset by beer growth. Scotch declined -20%, driven by Johnnie Walker in Travel Retail Asia and Middle East, South East Asia, and Korea.
Europe and Turkey net sales declined by -12%, with travel retail “severely impacted” by the COVID-19 crisis, noted the company.
Growth in the first half in the total region was more than offset by the impact of the crisis in the second half. High on-trade exposure hit markets across the region through the closures of the channel in many countries. In Europe, beer was particularly impacted, declining -20%.
Growth of Scotch in the first half was offset by declines in Continental Europe and France in the second half due to on-trade closures. Rum grew +3%, driven by Captain Morgan. Vodka declined -12%, driven mainly by Smirnoff in Continental Europe. Gin declined -9%, driven by declines of Gordon’s and Tanqueray in Continental Europe.
Africa net sales declined by -13%. East Africa declined -10% where continued beer growth in Tanzania was offset by lockdown closures affecting the on-trade in Kenya and Uganda. Net sales in Nigeria declined -20%, driven by double-digit declines in beer and Scotch. In South Africa, net sales declined -25%, driven by Scotch and vodka. Africa Regional Markets declined -8%. Spirits declined -14%, mainly impacting Johnnie Walker, Kenya Cane and Smirnoff.
Latin America and Caribbean net sales declined -15%. Performance in the second half continued to be hit by economic and socio-political pressures in key markets compounded by the impact of the pandemic.
All markets declined except Andean which grew +8% due to a strong first half and continued momentum in Scotch in Colombia. Scotch overall declined -21% as growth in Buchanan’s in Colombia and Brazil and White Horse in Brazil, were offset by declines in Johnnie Walker across the region. Gin grew double-digit primarily driven by Tanqueray in Brazil. Tequila was down -11% as strong Don Julio performance in Caribbean and Central America was more than offset by a decline in Mexico.
‘Global giants’ and ‘local stars’
Major brands or ‘global giants’ represent 39% of Diageo’s net sales and declined by -13%. This was driven by declines in Johnnie Walker and Guinness across all regions, while Smirnoff declined in all regions except for Latin America and Caribbean.
‘Local stars’ represent 20% of Diageo’s net sales and declined by -7%. Continued growth of Crown Royal in US Spirits was offset by declines, mainly in Chinese white spirits in China, McDowell’s in India, Buchanan’s in Latin America and Caribbean and US Spirits and JƐB in Iberia and South Africa due to imposed lockdowns.
Reserve brands represent 21% of Diageo’s net sales and declined -4%. Continued growth in Don Julio and Casamigos in US Spirits were offset by declines in Chinese white spirits, Johnnie Walker Reserve variants, Cîroc and Ketel One.
