Diageo (LON:DGE) has today announced its interim results for the six months ended 31 December 2019.
• Reported net sales (£7.2 billion) increased 4.2% driven by organic growth. Reported operating profit (£2.4 billion) increased 0.5%, driven by organic growth offset by unfavourable exchange, exceptional operating items and acquisitions and disposals
• All regions contributed to broad based organic net sales growth, up 4.2%, with organic volume up 0.2%
• Organic operating profit grew 4.6%, ahead of organic net sales, driven by productivity benefits from everyday cost efficiencies and strong price/mix, partially offset by cost inflation and upweighted marketing investment
• We continue to deliver consistently solid cash flow with net cash from operating activities at £1.3 billion, £0.3 billion lower than prior period and free cash flow at £1.0 billion, £0.4 billion lower than prior period largely due to one-off tax impacts and timing of tax payments
• Basic eps of 79.2 pence decreased by 2.1% due to prior year exceptional gains. Pre-exceptional eps grew 4.2% to 80.2 pence, driven by higher operating profit and the capital return programme
• Interim dividend increased 5% to 27.41 pence per share
See Explanatory Notes for explanation and reconciliation of non-GAAP measures.
Key financial information
Six months ended 31 December 2019
Outlook for exchange
Using exchange rates £1 = $1.31; £1 = €1.19, the exchange rate movement for the year ending 30 June 2020 is estimated to unfavourably impact net sales by approximately £110 million and operating profit by approximately £40 million.
Outlook for tax
The tax rate before exceptional items for the six months ended 31 December 2019 was 21.6% compared with 21.2% in the prior comparable period. We continue to expect a tax rate before exceptional items for the year ending 30 June 2020 to be in the range of 21% to 22%. For further details on taxation see Summary Income Statement (e) Taxation and Notes, Taxation.
Return of capital
On 25 July 2019, the Board approved plans for a further return of capital programme of up to £4.5 billion to shareholders over the three-year period 1 July 2019 to 30 June 2022, utilising the most appropriate mechanic of either share buybacks or special dividends depending on market conditions.
On 1 August 2019, Diageo entered into a non-discretionary agreement with a third party to execute the first phase of this return of capital programme to enable the company to buy back shares up to a maximum of £1.25 billion by 31 January 2020.
In the six months to 31 December 2019, £1.1 billion has been spent to repurchase 34.6 million shares and these shares have been cancelled.
Acquisitions and disposals
The impact of acquisitions and disposals on the reported figures was largely attributable to the disposal of the portfolio of 19 brands to Sazerac in the prior year.
Net Sales (£ million)
Reported net sales grew 4.2%
Organic net sales grew 4.2%
| Net sales | £ million |
| F19 H1 | 6,908 |
| Exchange(i) | 52 |
| Acquisitions and disposals | (46) |
| Volume | 11 |
| Price/mix | 275 |
| F20 H1 | 7,200 |
(i) Exchange rate movements reflect the adjustment to recalculate the reported results as if they had been generated at the prior period weighted average exchange rates.
Reported net sales grew 4.2%, driven by organic growth and favourable exchange which was partially offset by acquisitions and disposals.
Organic volume growth of 0.2% and 4.0% positive price/mix delivered 4.2% organic net sales growth. All regions reported organic net sales growth.
Ivan Menezes, Diageo Chief Executive, commenting on the results said:
“Diageo has delivered another good, consistent set of results in the first half, with broad based organic net sales growth across regions and categories. We have continued to increase investment behind marketing and growth initiatives, while expanding organic operating margins.
During the half, we returned £1.1bn to shareholders via share buybacks, as part of our plan to return up to £4.5 billion of capital to shareholders for the period Fiscal 20 to Fiscal 22. We have also delivered another half of solid free cash flow at almost £1 billion.
These results reflect the changes we are making in the business to drive shifts in our culture. They are in line with our current mid-term guidance and have been delivered in the face of increased levels of volatility in India, Latin America and Caribbean and Travel Retail.
For the full year, we therefore expect organic net sales growth to be towards the lower end of our 4 to 6% mid-term guidance range. We continue to expect organic operating profit to grow roughly one percentage point ahead of organic net sales.
There is ongoing uncertainty in the global trade environment and we would not be immune from further policy changes. We remain focused on building the long-term health of our brands, supported by data-led insights and a culture of everyday efficiency. With the consumer at the heart of the business and with greater agility and discipline in the execution of our strategy, we are growing Diageo in a consistent, sustainable way.”
