Diageo

  • Global   alcoholic drinks group Diageo earlier this week reported robust interim   results for the six months ended 31 December 2021. It reported net sales of   £8.0 billion, representing an increase of 15.8%, with strong organic growth,   partially offset by an adverse foreign exchange impact. Organic net sales   grew 20%, driven by strong double-digit growth across all regions. Revenue   growth was attributable to the continued recovery in the on-trade, resilient   consumer demand in the off-trade as well as market share gains. These factors   were underpinned by favourable industry trends of spirits taking share of   total beverage alcohol and premiumization.

  • Diageo   reported an operating profit of £2.7 billion, an increase of 22.5% on the   comparable interim period. Significantly the operating margin increased by   190bps to 34%, primarily due to growth in organic operating profit. Return on   invested capital increased by 352bps to 19.3%, driven by organic operating   profit growth, partially offset by increased tax. Basic EPS of 84.3 pence   increased by 54% and pre-exceptional EPS increased by 22.5% to 85.6 pence.

  • Looking   at the regional breakdown, North America reported net sales grew 10%,   primarily reflecting strong organic growth. US spirits growth was primarily   driven by tequila, up 61%, as well as rapid growth in Canadian whisky,   scotch, and vodka, which more than offset declines in rum, US whiskey and   Baileys. North America now accounts for 37% of Diageo’s revenues. In Europe,   net sales increased by 21%, primarily driven by strong organic growth. Growth   was underpinned by the spirits category gaining share of total beverage   alcohol and premiumisation. Beer net sales grew 44%, driven by a strong   increase in Guinness as on-trade restrictions eased in Ireland and Great   Britain. Europe contributed 22% of Group revenues during the period. The Asia   Pacific region reported net sales growth of 10%, primarily reflecting strong   organic growth. Greater China net sales grew 18%, primarily driven by strong   momentum in both Chinese white spirits and super-premium plus scotch. In   India, net sales grew by 12%, reflecting strong consumer demand in the   off-trade channel, recovery of the on-trade channel and strong   premiumisation. The Asia region accounted for 19% of revenues. Africa   reported net sales growth of 17%. Growth in Africa reflected a good   performance across all markets except Ethiopia, which continued to decline.   Growth in South Africa was impacted by continued on-trade and off-trade   restrictions related to Covid-19, as well as economic and social challenges.   Africa contributed 11% to Diageo’s interim revenues.

  • Diageo with brands such as Johnnie Walker, Baileys, Guinness and Don   Julio is undoubtedly a high-quality company. In our view these brands provide   a substantial moat which should allow the company to continue generating   shareholder value as it has done in the past. We remain long term   shareholders in the Cratos BCI Worldwide Flexible Fund as well as global   portfolios despite the relatively elevated PE multiple of around 25x.

Diageo