UK – Diageo, multinational beverage alcohol company, has reported an 8.7% decline in net sales to £11.8 billion (US$13.94bn) driven by organic declines for the year ended 30 June 2020.
Diageo describes the year as a “year of two halves” due to the significant impact of Covid-19 in its second half which offset the gains made in the first half.
Organic net sales were down 8.4%, as demand for its whisky, gin and vodka fell in all markets except North America.
North America, Diageo’s largest segment, was the only region to show promise with sales rising 2% and growth in all three 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.
The company’s tequila brands continued to see strong growth at 25%, reflecting double-digit growth of Don Julio and Casamigos. RTDs also grew at 8% with Smirnoff Ice flavour innovations such as Smash and Seltzers contributing to the category’s solid performance.
Despite a strong performance in China in its last year results, organic sales in Asia were the most impacted, falling by 16%. This was driven by on-trade closures particularly in India, Thailand and Greater China, which saw the absence of its New Year celebrations and significant declines in its white spirits.
Europe and Turkey net sales fell 12% with beer sales particularly impacted by lockdown closures and sport event cancellations leading to a 20% decline. Africa fell 13%, while the company’s Latin America and Caribbean market dropped by 15%.
Reported operating profit fell 47.1% to £2.1 billion (US$2.49bn) driven by exceptional operating items and organic net sales.
The owner of Johnnie Walker and Captain Morgan took a £1.3 billion (US$1.54bn) writedown related to its businesses in India, Nigeria, Ethiopia and the Windsor whisky brand in South Korea which it says reflects challenging trading conditions amid Covid-19.
“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,” Ivan Menezes, CEO of Diageo, said.
“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.”
However, given the continued uncertainty, Diageo is not providing any financial guidance for the year ending 30 June 2021.
Solid cash flow delivery with net cash from operating activities at £2.3 billion (US$2.73bn), £0.9 billion (US$1.07bn) lower than prior period and free cash flow at £1.6 billion (US$1.9bn), £1.0 billion (US$1.19bn) lower than prior period, in each case largely due to lower organic operating profit, lower dividends from associates, one-off tax impacts and increased working capital use.
Measures have been put in place to reinforce Diageo’s already solid liquidity including pausing the current three-year return of capital programme, bringing forward a £2.0 billion (US$2.37bn) USD bond issuance launched in April 2020 and putting in place an additional committed credit facility of £2.5 billion (US$2.97bn).
In other related news, Diageo has announced that Ho KwonPing will retire as a Non-Executive Director, effective 28 September 2020.
Ho KwonPing has served on Diageo plc’s Board of Directors for eight years, having joined on 1 October 2012 and has also been a member of the Audit, Nomination and Remuneration Committees of the Board.
Ho KwonPing has informed the Company that he does not intend to stand for re-election as a director at the annual general meeting of the Company scheduled to be held on 28 September 2020 and will step down from the Board on that date, in order to enable him to dedicate his attentions full-time to the leadership of his family group of companies in the aftermath of the COVID-19 pandemic.
“I am very grateful for the valuable contribution Ho KwonPing has made to Diageo and its business during his tenure as a Non-Executive Director” Javier Ferrán, Chairman, Diageo plc said.
“The Board has benefited greatly from his extensive business experience, particularly in the Asia Pacific region, as well as his insights into the luxury hospitality and consumer product arenas. We thank Ho KwonPing for all he has done for Diageo over the last 8 years and wish him the very best as his business and the world emerge from COVID-19.”
Liked this article? Subscribe to Food Business Africa News, our regular email newsletters with the latest news insights from Africa and the World’s food and agro industry. SUBSCRIBE HERE