Diageo Focuses on Quality Sustainable Growth
Diageo has reported a 5.8% increase in net sales to £12.9 billion and a 9.5% rise in operating profit to £4.0 billion for the year ended 30 June 2019. All regions – North America, Europe and Turkey, Africa, Latin America and Caribbean, Asia Pacific – contributed to the broad based organic net sales growth of 6.1%, with organic volume up 2.3%.
Organic operating profit grew 9.0%, ahead of top line organic growth, driven by improved price/mix and productivity benefits from ongoing cost efficiencies, partially offset by cost inflation and higher marketing investment. Cash flow continued to be strong, with net cash from operating activities at £3.2 billion, up £164 million, and free cash flow at £2.6 billion, up £85 million.
Diageo’s giant global brands (Johnnie Walker Scotch whisky, Smirnoff vodka, Baileys liqueur, Captain Morgan rum, Tanqueray gin and Guinness beer), which generated 41% of group net sales, grew 5%. Growth was broad based across all brands with the exception of Captain Morgan, which was down 2%.
Scotch whisky, which represents 25% of Diageo’s net sales, was up 6% with broad based growth across all regions except Europe. Scotch growth was driven by Johnnie Walker, which delivered a strong performance with net sales up 7%, benefitting from the successful launch of ‘White Walker by Johnnie Walker’ inspired by the TV series Game of Thrones. Scotch malts were up 12% with growth coming from Asia Pacific, North America and Europe.
Ivan Menezes, chief executive of Diageo.
Diageo’s Vodka business, which accounts for 11% of group net sales, returned to growth during the period with net sales up 2% and growth across all the regions except Europe. Vodka growth was driven by Smirnoff and Ketel One partially offset by a decline in Ciroc vodka.
Generating 16% of Diageo’s net sales, the Beer business grew 3% during the year. In Africa beer grew 5%, largely driven by Senator Keg in Kenya and Serengeti Lite in Tanzania partially offset by decline in Satzenbrau in Nigeria. Guinness grew 2% with growth largely driven by Guinness Foreign Extra Stout, as well as Guinness Draught and the continued growth of Hop House 13 Lager in Europe. In Ireland lager net sales grew 4% driven by strong growth in Rockshore.
Diageo’s Gin and Tequila businesses, each representing 4% of group net sales, exhibited the strongest growth during the 2019 financial year. Gin grew by 22% with double digit growth across all regions except North America with the Tanqueray and Gordon’s brands growing by double digits. Tequila increased by 29%, driven by the strong double digit growth of Don Julio in the US and Latin America and Caribbean as well as Casamigos in the US.
Ivan Menezes, chief executive of Diageo, comments: “Diageo has delivered another year of strong performance. Organic volume and net sales growth was broad based across regions and categories, with new product innovation being a strong contributor. We expanded organic operating margin ahead of our guidance and increased investment behind our brands ahead of organic net sales growth.”
He elaborates: “Our focus on quality sustainable growth is backed by a culture of everyday efficiency that enables us to invest smartly in marketing and growth initiatives while expanding margins. These results reflect the steady progress we are making and as we look ahead we see attractive opportunities to deliver consistent growth and create shareholder value. In the medium term I expect Diageo to maintain organic net sales growth in the mid-single digit range and to grow organic operating profit ahead of net sales in the range of 5%-7%.”
Having returned £2.8 billion to shareholders through share buybacks during the 2019 fiscal year, the Diageo board has approved plans for a further return of capital of up to £4.5 billion over the period 2020 to 2022.
