Diageo sees profits drop by almost half in first six months
Whisky giant Diageo, which owns Guinness and Johnnie Walker, has seen its half-year profits almost halve to £2.1 billion in the year to June 30 as the firm has hit by the closure of pubs and restaurants in the wake of the coronavirus pandemic.
The firm’s shares dropped by 5.9% to 2,710p in early trading after it had highlighted that operating profits fell by 47% as it was also hit by a £1.3bn write-down across its operations in India, Nigeria, Ethiopia and Korea.
Total sales fell by 9% to £11.8bn for the year despite being boosted by growth in sales in North America.
In light of this year’s results, Diageo has said its flagship Johnnie Walker visitor centre in Edinburgh will not meet its original completion deadline of the end of this year. The firm was preparing to renovate the former House of Fraser store in the capital’s Princes Street into a multi-storey whisky centre complete with rooftop bars and brand experience.
Organic operating profit was down 14.4%, ahead of organic net sales, driven by volume declines, cost inflation and unabsorbed fixed costs that were partially offset by short term cost reductions and ongoing productivity benefits.
Solid cash flow delivery with net cash from operating activities at £2.3bn, £0.9bn lower than the previous period and free cash flow at £1.6bn, £1.0bn lower than the 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.
Diageo has said that in response to the COVID-19 pandemic and the economic impact of it on the firm, it will pause its current three-year return of capital programme, bringing forward a £2.0bn USD bond issuance launched in April 2020 and putting in place an additional committed credit facility of £2.5bn.
Ivan Menezes, chief executive, commented on the results: “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. Through these challenging times we have acted quickly to protect our people and our business, and to support our customers, partners and communities.
“The actions we have taken to strengthen Diageo over the last six years provide a solid foundation to respond to the impacts of the pandemic. We are now a more agile, efficient and effective business.
“We have taken decisive action through the second half of fiscal 20, tightly managing our costs, reducing discretionary expenditure and reallocating resources across the group. We are further enhancing our data analytics and technology tools to rapidly respond to local consumer and customer shifts triggered by the pandemic. We have strengthened liquidity, giving us the flexibility to continue to invest effectively in the business for the long term.”
Mr Menezes added that while the trajectory of the recovery is uncertain, with volatility expected to continue into fiscal 21, he is confident in the firm’s strategy and resilience.