Global spirits giant Diageo has shrugged off the closure of pubs and bars across the world and a slump in travel retail to post a rise in organic sales, but profits were hit by unfavourable currency movements.
The maker of Johnnie Walker and Guinness reported a 1% rise in organic net sales, driven by a 1.2% increase in price/mix amid a slight 0.2% fall in volume.
Net sales benefitted from the replenishment of stock levels by distributors and retailers in certain markets, mainly North America, albeit partially offset by continued customer de-stocking in travel retail.
Price/mix was positive in North America and Africa, while strong growth in North America was offset by declines in all other regions except for Africa, which was roughly flat.
North America delivered net sales growth of 12%, with growth across all three key markets. US Spirits net sales increased 15%, with growth across all categories, driven by resilient consumer demand, spirits continuing to take share of total beverage alcohol and positive category mix.
Europe and Turkey net sales declined 10%. The business achieved good net sales growth in Turkey, Northern Europe and Great Britain, reflecting strong momentum in off-trade channels. However, Ireland, Southern Europe and Eastern Europe were significantly impacted due to their high exposure to the on-trade channel.
In Great Britain, net sales increased 2% as strong momentum in the off-trade more than offset declines due to on-trade restrictions and closures. Spirits growth of 15%, driven by a strong market and market share gains across all categories in the off-trade. Beer declined in the on-trade, but beer on-trade share gains when restrictions were eased.
Africa sales were flat, while Latin America and Caribbean net sales declined 1%.
Overall reported net sales declined 4.5%, as growth in organic net sales was impacted by unfavourable foreign exchange and to a lesser extent by the negative impact of acquisitions and disposals.
Those factors also hit organic reported operating profit, which was down 8.3% to £2.4bn mainly driven by unfavourable exchange, decline in organic operating profit, the impact of acquisitions and disposals and fair value adjustments partially offset by lower exceptional operating items.
Organic operating profit declined 3.4%, with the impact of lower organic operating margin only partially offset by higher sales.
CEO Ivan Menezes commented: “We delivered a strong performance in a challenging operating environment, returning to top line organic sales growth during the half. We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in Travel Retail.
“North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol.
“Organic operating margin improved compared to the second half of fiscal 20 driven by increased operating leverage and tight control of discretionary expenditure. The decline compared to the first half of fiscal 20 reflected an adverse channel and portfolio mix. We expect margins to improve as the on-trade and Travel Retail recover and with the continued benefit of everyday efficiency.
“We expect ongoing volatility and disruption in the second half of the year, particularly in the on-trade channel, which will make performance more challenging. The medium and long-term growth drivers and opportunities for our business remain intact and I am confident in our strategy, the resilience of our business and Diageo’s ability to emerge stronger.”
Diageo declined to provide forward looking sales guidance, but noted it is lapping the second half of fiscal 20, which was significantly impacted by the onset of Covid-19 and therefore expect to see improvement over this weak comparator period across all regions.
It expects organic operating profit growth in the second half will be ahead of organic net sales growth in all regions due to the weak comparator period.
Diageo shares have jumped 3.9% this morning to 2,965p on the news.
Fever-Tree has delivered a “resilient” performance in 2020, despite a 22% slump in UK revenues, as it has made progress with off-trade and online sales.
Despite the ongoing challenges posed by the pandemic, Fever-Tree said it had delivered a strong second half performance across key markets and is expected to deliver revenue for the full year of £252m, down 3% year on year.
In the UK sales were down 22% to £103.3m as its off-trade sales increased by around 20% amid the launch of new flavours and formats and an increase in marketing spend for at-home consumption.
“Fever-Tree finished the year as the clear market leader with a value share of 40.1%,” it said.
As expected, on-trade sales were impacted by the periods of lockdown and on-going restrictions during the year, leading to a decline of 60% year-on-year.
In the US, it saw a 23% increase in overall revenue. This result was particularly encouraging given the very strong comparators from the second half of 2019 and is testament to the strength of its off-trade and e-commerce performance amid widespread on-trade restrictions during the year.
In addition, in December 2020 it started to produce Fever-Tree products with a new bottling partner on the West Coast of the US, which will reduce transport and logistic costs as well as lead times.
European revenue for the full year was up 1% to £65.3m, a robust performance given the on-trade exposure of Southern European markets which were heavily impacted by the pandemic.
Fever-Tree also said it made excellent progress in Australia and Canada, to take rest of the world revenues up 58% to £25m.
However, this shifts in region and channel mix has continued to impact the gross margin during the second half of the year. EBITDA margin is in-line with expectations, and while this is down on the prior year, due to the strong revenue performance, earnings are expected to be ahead of expectations.
In terms of outlook, Fever-Tree said off-trade continues to see “good momentum” in many regions, with at-home consumption and growing interest in long mixed drinks becoming increasingly established.
Whilst On-Trade restrictions and closures resulting from the pandemic will continue to influence channel and territory mix, it said it remains committed to investing in the future opportunity for the brand across all regions.
CEO Tim Warrillow commented: “The last twelve months have highlighted the strength of the Fever-Tree brand amongst our consumers and customers as well as the fantastic team and partners we have in place. We made a conscious decision not to furlough any of the team while continuing to invest in the opportunity ahead and this has positioned us well as we look beyond the current uncertainty.
“The COVID-19 pandemic has thrown up many challenges but it has also accelerated the trends we have been talking about for a number of years – namely the growing interest in premium spirits and long mixed drinks as at-home mixing has taken hold not only with consumers but retail and spirits partners alike. Our ability to capitalise on and drive this trend has seen Fever-Tree reach more households and become a feature in more fridges worldwide than ever before.
“While our performance across the Off-Trade in the UK and Europe has been very encouraging, special mention must be made of our performance in the US, Australia and Canada, where we have seen outstanding growth in the past twelve months underlining the global opportunity still ahead for the brand. I am of course mindful that uncertainty remains especially in terms of the timing of reopening of the On-Trade across many markets but our performance over the last year, combined with our track record against the competition and the supportive global trends gives us confidence in the future growth potential for Fever-Tree.”
Robinsons maker Britvic saw a 5.8% drop in organic sales in the first quarter, hit by the continued slump of out of home drinks consumption.
In the three months to 31 December, total revenue fell 9.8% to £328.1m.
On a comparable basis of constant currency and excluding the disposal of the French private label juice business, this represents a 5.8% decline on last year.
Britvic said its brands continued to win in the channels open to it, further extending at-home share gains in key growth markets of GB and Brazil.
In GB total revenue declined 4.1%, with strong at-home growth of 11.9% offset by a decline of 32.5% in out-of-home, resulting in adverse pack and channel mix.
Brazil revenue continued to grow strongly at 25.6%, whereas comparable Rest of World revenue fell 19.3%.
Britvic said that the introduction in GB and Ireland of tighter pre-Christmas COVID-19 restrictions, and the subsequent national lockdown measures, have put further pressure on sales in both the hospitality sector and on the go consumption.
While there remains considerable uncertainty over the depth and duration of future restrictions, it anticipates they will remain in place at least through our second quarter, meaning performance will continue to be “significantly affected” by similar adverse channel and pack mix to that which we saw in the second half of FY20, and gradually improve following the lifting of restrictions.
CEO Simon Litherland commented: “Trading in the first quarter continued to be impacted by COVID-19 restrictions. Our portfolio of family favourite brands has however again performed well in the channels open to us, assisted by the additional flexibility we now enjoy as a result of investment in our GB supply chain.
“While the introduction of the latest restrictions will undoubtedly impact this year’s results, we will continue to implement our strategy. We therefore intend to rebuild investment behind our brands, people and planet initiatives and stay focused on our medium and long-term potential.
“Britvic is a fantastic business operating in a highly resilient category. With a team of dedicated and passionate people and market-leading brands, we are confident that we will continue to successfully navigate the pandemic, emerge stronger, and be at the forefront of the recovery when it comes.”
Sweetener producer Tate & Lyle has posted an 8% rise in sales volumes for the three months to 31 December due to increased consumption of food in the home.
Its food & beverage solutions division saw revenue increase by 8% benefitting from higher volume, good price and mix management and continued growth from new products
North America delivered double-digit revenue growth reflecting good commercial performance, strong demand for products consumed in-home and improving demand for out-of-home consumption. Asia, Middle East, Africa and Latin America delivered high single-digit revenue growth helped by strong growth in Asia Pacific, especially in China, and good mix and pricing in Latin America, mainly in Brazil. In Europe, revenue was marginally higher than the comparative period reflecting solid demand for in-home consumption.
Sucralose saw a 3% revenue drop, reflecting customer mix and pricing pressure. Volume was slightly higher due to the phasing of customer orders into the quarter. Demand continues to be impacted by lower consumption of products out-of-home, particularly beverages.
Primary Products volume increased by 4%. Sweetener volume was higher than the comparative period benefitting from firmer demand and the phasing of some customer orders into the quarter.
For its full year to 31 March 2021, despite the continuing impact of the Covid-19 pandemic, group adjusted profit before tax in constant currency is expected to be modestly ahead of the prior year benefitting from continued momentum in food & beverage solutions, cost discipline and significantly higher year-on-year commodities profits.
CEO Nick Hampton said: “This was a quarter of strong performance and strategic progress. Food & Beverage Solutions and Primary Products both delivered topline growth supported by excellent operational execution and cost discipline.
“We announced two acquisitions in the quarter to strengthen our sweetener and texturant portfolios, our new business and innovation pipelines are robust, we are staying close to our customers and our productivity programme is delivering significant benefits.
“While the operating environment remains uncertain and out-of-home consumption continues to be below pre-pandemic levels, the business has positive momentum. We remain focused on delivering our priorities and are well placed to emerge from this period an even stronger business.”
On the markets this morning, the FTSE 100 is down yet another 1.5% to 6,467.7pts on mounting COVID worries as the UK surges past 100,000 deaths.
Early risers include Fever-Tree, up 4.4% to 2,405.8p and Tate & Lyle, up 3.5% to 684.2p on this morning’s announcements, while Sainsbury’s is up 1.3% to 256.1p.
Fallers include Stock Spirits, down 6.3% to 267p, Pets at Home, down 5.1% to 395.6p and Naked Wines, down 3.7% to 723.2p.
Yesterday in the City
The FTSE 100 continued its rough run of recent days, falling a further 0.8% yesterday back to 6,524.2pts.
Greencore jumped 7.2% up to 121.3p despite a 15% drop in first quarter revenues as it said the current UK lockdown is not having quite the same damaging effect as the first COVID lockdown last year.
Other food to go players were also on the up, with Marks & Spencer, up 4.5% to 148p, Greggs up 4.1% to 2,080p and Compass Group, up 3.7% to 1,370.5p.
Other risers included Science in Sport, up 3.5% to 44p and Ocado, up 3.4% to 2,883p.
The day’s fallers included Coca-Cola HBC, down 4.1% to 2,160p, Domino’s Pizza Group, down 3.8% to 326.6p, Coca-Coca European Partners, down 3.6% to €37.58, DS Smith, down 3.2% to 363.8p, Imperial Brands, down 3% to 1,577.5p and Premier Foods, down 2.7% to 94p.