World: Diageo’s revenues boosted above pre-Covid levels in H1

Drinkers buying spirits to make cocktails at home have helped Diageo boost revenues above pre-Covid levels, even as supply chain disruption prevented the distiller from selling as many bottles as it would like.

The London-listed company said it was planning to accelerate the return of up to £2.6 bln in capital to shareholders after it made £8 bln in first-half net sales, 16 per cent more than a year ago and also higher than the same period in 2019.

Yet in the latest sign of continued supply chain disruption, Diageo executives said the company, whose brands include Gordon’s gin, Smirnoff vodka and Baileys Irish Cream, had struggled to meet demand for some products.

Glass shortages have prevented it from sourcing enough bespoke bottles for Bulleit, its Kentucky bourbon, while a lack of aged liquor supplies have held back growth of tequila and its Canadian whisky brand Crown Royal.

“The constraint here is being able to meet the very high demand that we’re seeing,” said Lavanya Chandrashekar, chief financial officer, adding that she expected the problems with glass supplies to be resolved shortly.

Diageo said it was still benefiting from a trend of consumers switching to upmarket drinks, in part because they have been making more cocktails at home during the pandemic.

Scotch, including the Lagavulin and Talisker malts, contributed about a third of the group’s net sales growth in the period. Limited editions of Johnnie Walker sold particularly well, Diageo said.

Among the company’s strongest performers were the tequila brands Casamigos, acquired from actor George Clooney in 2017, and Don Julio, with sales in the category up more than half year on year.

Consumers had “discovered their inner mixologist”, said chief executive Ivan Menezes. “Part of the appeal of the cocktail culture is you can create much more versatile drinks than just reaching into the fridge for a boring glass of white wine or a lager.”

He argued that the cocktail-making habit would endure beyond the pandemic and that “premiumisation” in the alcohol market would continue, even as inflation puts household budgets under pressure.

“The trend of people drinking better has been very sustained over a couple of decades,” Menezes said. “Ours is an infrequently purchased product, an affordable luxury.”

As well as resilient sales through retailers, the company, which brews Guinness, has also benefited from the reopening of bars, particularly in Europe and North America. Sales of beer rose 22 per cent in the period.

Off-duty sales in airports remained “impacted” by coronavirus restrictions, although there had recently been a “partial recovery” in that market, Chandrashekar said.

Despite rising costs of packaging, energy and shipping, pre-tax profits across the group rose from £2.2 bln to £2.7 bln in the six months to the end of December, while diluted earnings per share increased from 67.4p to 84p.

Diageo said it planned to complete a £4.5 bln capital return programme by June 2023, a year sooner than scheduled. By the end of December, it had returned £1.9 bln under the scheme. The company increased its interim dividend 5 per cent to 29.36p a share.

Shares in Diageo, which have lost almost 11 per cent so far in 2022, rose 0.4 per cent in early trading.

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