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Diageo has reported double digit rises in sales and profits as the recovery in the on-trade was boosted by market share gains and premiumisation trends. 

The group’s reported net sales for the six months to 31 December grew 15.8% to £8bn, driven by strong organic growth, partially offset by unfavourable foreign exchange. 

Organic net sales growth of 20.0% reflected organic volume growth of 9.3% and positive price/mix of 10.7%.  

Diageo said all regions grew organic net sales, driven by the recovery of the on-trade channel, resilient consumer demand in the off-trade channel and market share gains. Additionally, growth was supported by favourable industry trends of spirits taking share of total beverage alcohol and premiumisation. 

The positive price/mix benefit was primarily driven by mix, reflecting the strong growth of premium plus brands, particularly in scotch, tequila and Chinese white spirits, as well as the continued recovery of the on-trade channel in Europe and North America and the partial recovery of Travel Retail.  

There was also a price benefit, primarily from price increases in Latin America and Caribbean, Africa and North America. 

The spirits giant’s operating profit increased 22.5% to £2.7bn, primarily due to growth in organic operating profit and partially offset by the negative impact of adverse exchange rate movements. 

Organic operating profit grew 24.7%, ahead of organic net sales growth, driven by growth across all regions. 

Organic operating margin increased 131bps driven by a strong recovery in gross margin and leverage on operating costs, while increasing marketing investment. Latin America and Caribbean, Europe and Africa largely all saw operating margin improvement, partially offset by a decline in North America. 

Looking forward, Diageo said it expects sales momentum to continue through the second half of its financial year, albeit it is lapping a tougher comparative period.  

“We believe we are well positioned to benefit from resilience in the off-trade and continued recovery in the on-trade. However, we expect near-term volatility to remain, including potential impacts from Covid-19 and global supply chain constraints, and for disruption in Travel Retail to continue,” it stated. 

During the second half of the year, it expects organic operating profit to grow ahead of organic net sales.  

Organic operating margin will continue to benefit from growth in sales volumes, favourable channel mix and premiumisation trends.  

Meanwhile, it said its focus on everyday efficiency and revenue growth management will help mitigate the impact of cost inflation.  

CEO Ivan Menezes commented: “This performance demonstrates our world-class brand building capability, supply chain excellence and agile culture, and reflects the strength of our portfolio across geographies, categories and price tiers.   

“Strong cash flow generation is enabling re-investment in sustainable long-term growth. We are expanding our production capacity, enhancing our digital capabilities, investing in talent and progressing with our ambitious 10-year sustainability plan. During the half, we also returned £0.5 billion to shareholders via share buybacks and we are accelerating the timeline of our return of capital programme of up to £4.5 billion to now be completed during fiscal 23. 

“We have made a strong start to fiscal 22. While we expect near-term volatility to remain, including potential impacts from Covid-19, global supply chain constraints and rising cost inflation, I am confident in our ability to successfully navigate these disruptions through the remainder of the year.” 

Diageo shares are up 0.6% this morning to 3,665.4p on the news.

Morning update 

Fever-Tree has delivered “excellent” sales performance in 2021 with strong growth across all our key markets, but has warned current cost increases are “more significant” than it anticipated. 

Updating the market on its full year results, FeverTree expects to post full year revenues of £311m,  an increase of 23% year-on-year (26% at constant currency) and ahead of previous guidance. 

It said this “encouraging” performance was driven by continued strength in the off-trade channel, which remains well ahead of 2019 levels, as well as the return of the on-trade during the second half of the year in most of its markets, and was achieved despite the emergence of new COVID variants towards the end of the year. 

UK revenue grew by 15% during 2021, ahead of expectations. This reflects the robust on-trade recovery along with the continued strength of the brand in the off-trade, which is benefitting from the group’s investment in marketing and new product innovation during the pandemic. 

UK on-trade sales increased by 59%, while off-trade was up 2.4% as it extended its value share of the mixer category to 50.5% in the channel. 

Fever-Tree said it is building significant momentum in the US, delivering £77.9m revenue in 2021, a 33% increase year-on-year (41% at constant currency). This result is “particularly encouraging given the strong comparators from 2020” and was supported by the launch of new products and the acceleration of on-trade sales. 

Europe was “significantly” ahead of expectations, with total revenue increasing by 35% year-on-year to £88.2m (40% at constant currency), driven by continued off-trade progress, the positive opening of the on-trade from the end of the second quarter. 

Rest of the World sales were up a more modest 6% to £26.7m, which was behind guidance as it lapped a stock build by its importers in the second half of 2020. 

On an earnings basis, Fever-Tree said it performed well against a backdrop of unprecedented macro uncertainty and supply chain disruption. Its EBITDA margin continued to be impacted in the second half as a result of these macro headwinds, but due to the strong revenue performance, absolute EBITDA and Earnings are expected to be in line with expectations. 

However, it said “it is now clear that cost headwinds in 2022 will be more significant than we anticipated”, and whilst we are employing a range of mitigating actions, margins are expected to remain broadly flat in 2022, resulting in an EBITDA range of between £69m-£72m. 

CEO Tim Warrillow commented: “Over the last two years we have seen an acceleration in supportive consumer trends, such as the growing interest in long mixed drinks, especially at home, as well as the premiumisation of both the spirit and mixer categories.  

“Retailers, spirits brands and consumers are all getting behind these trends and Fever-Tree, as the World’s “Number one best-selling mixer”, “Number one top trending mixer” and the largest premium mixer brand, is incredibly well-placed to continue to take advantage of this significant and long-term trend. 

“The group continues to deliver impressive growth in every one of our key markets, however, I am of course mindful that short-term logistics challenges and cost pressures remain, along with on-trade restrictions, albeit at a much lower level than this time last year. Despite this, Fever-Tree’s strong growth and track record against the competition, alongside supportive global trends, gives us confidence in our ability to capitalise on the substantial global opportunity.” 

Elsewhere, Britvic has posted 16.5% revenue increase in its first quarter to 31 December, with sales rising to £373.9m. 

The figure is 12.8% up on the same period in 2019 before the pandemic. 

Growth was led was GB, with sales up 17.1% due to the at-home channel continuing to grow and out-of-home recovering in line with expectations in October and November.  

Out-of-home trading in December was impacted by changes in consumer behaviour and a downturn in socialising in GB and Ireland due to the Omicron Covid-19 variant.   

However, with the announcement last week of the easing of restrictions across the UK and Ireland, we anticipate the out-of-home channel will continue its recovery back towards 2019 levels. 

Brazil and Other International markets grew revenue by 8.7% and 17.9%, respectively. 

Britvic said it continues to experience inflationary pressures across the business and “remain focused on minimising the impact on our business through a combination of revenue management, smart procurement and disciplined cost control”.   

CEO Simon Litherland commented: “We have continued to see strong demand for our portfolio of trusted family favourite brands across all channels and markets, helping us deliver strong year-on-year revenue growth of 16.5% in the first quarter. 

“We remain confident in our growth strategy, backed not only by our market-leading brands and our highly engaged employees, but also by our proven track record of successfully navigating headwinds.  While we continue to experience inflationary pressures, our focus remains on minimising the impact on our business and I am confident we will continue to make progress this year and deliver strong returns for our shareholders.” 

Finally, Greencore has reported strong revenue growth in the 13 weeks to 24 December depsite the emergence of the Omicron varient hitting the food to go recovery at the end of the period. 

Sales increased by 24.4% year on year, driven by strong growth in food to go categories, while pro forma revenue grew by 26.4% year on year and was 7.5% above equivalent pre-COVID levels in 2019. 

Pro forma revenue in food to go categories increased by 34.9% year on year and was 6.1% above equivalent pre-COVID levels in 2019.  

Greencore said the underlying recovery in food to go categories continued in the period, and was augmented by the onboarding of new business wins, continued growth in the distribution component of the group’s business, and the emerging impact of inflation 

Pro forma revenue growth in other convenience categories was 13.1% year on year and 10.3% above equivalent pre-COVID levels. 

Greencore said it also continued to progress well with the recovery of input cost and other inflation with customers. However, the pace of profit conversion continued to be impacted by industry wide supply chain and labour challenges, it said. 

Looking forward, it said the uncertainty regarding the duration and impact of COVID-19 variants on the trading environment, particularly on demand in its food to go categories, has made it more difficult to predict 2022 performance.  

To date, it said there has been some impact on the group’s revenue momentum in what is its seasonally quieter period of the year, albeit the easing of Plan B restrictions should mitigate that impact. 

It said it is committed to the recovery of input cost and other inflation with customers “with the scale of this inflation increasing again in recent months”.  

“Supply chain and labour challenges remain elevated across the UK food industry, exacerbated by the impact of the Omicron COVID-19 variant,” it said. 

Though these challenges persist, the Group continues to anticipate a FY22 outturn in line with market expectations, with profitability heavily weighted towards the seasonally important second half of the year. 

Board chair Gary Kennedy commented: “I am encouraged by the progress that we have made during Q1 in what continued to be a challenging trading environment. We remain focused on rebuilding our economic model effectively and sustainably with all stakeholders, thereby positioning the company for a strong future.” 

On the markets this morning, the FTSE 100 is up another 0.2% to 7,481.1pts.

Risers include Britvic, up 1.6% to 879p, Sainsbury’s, up 1.1% to 294.9p and Imperial Brands, up 0.8% to 1,758p.

Fallers include FeverTree, down 7% to 2,196p, Deliveroo, down 4% to 150.9p and THG, down 3.9% to 124.9p.

Yesterday in the City 

The FTSE 100 continued to bounce back from Monday’s heavy falls, closing yester 1.3% higher at 7,469.8pts. 

Pets at Home Pets at Home 2.7% to 429.4p after it lifted its profit expectations following a bumper Christmas as momentum picked up during lockdown carried on throughout 2021. 

There was a rebound in the tech sector, with THG up 8.5% to 129.9p, Ocado up 5.7% to 1,508.5p, PayPoint, up 4.3% to 658p and Deliveroo, up 3.8% to 157.3p. 

Other risers included Devro, up 4.5% to 220p, Greggs, up 3.2% to 2,640p, Coca-Cola Europacific Partners, up 3% to €50.95 and Compass Group, up 2.8% t 1,671.5p. 

The day’s fallers included FeverTree Drinks, down 6.5% to 2,360p, PZ Cussons, down 4.5% to 187.4p, McBride, down 3.5% to 49.2p, Unilever, up 2.7% to 3,831p, Premier Foods, up 2% to 116,6p and Bakkavor, up 1.6% to 121p. 

 
 

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