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Diageo tops up interim dividend as North America shows its spirit

European sales declined by 10%, as growth in Britain and northern Europe was offset by significant declines in Ireland, southern and eastern Europe because of higher exposure to the on-trade

Diageo PLC -

Diageo PLC (LON:DGE) topped up its half-year dividend after underlying sales of drinks brands such as Johnnie Walker whisky, Gordon’s gin and Don Julio tequila bubbled higher in the first half of the year.

However, strong currency swings meant that reported net sales fell 4.5% to £6.9bn for the six months to end-December 2020 and pre-tax profit fell by 11% to £2.2bn.

Ignoring currency swings, organic sales growth rose 1% as North America, the FTSE 100 group’s largest market was up 12.3%, counterbalancing declines in Europe, Asia Pacific and Africa.

North America sales grew 12% as spirits continued to take a larger share of the total beverage market, including of Don Julio and Casamigos tequila, Cîroc vodka, Bulleit bourbon and Johnnie Walker and Buchanan's whisky.

European sales declined 10%, as growth in Britain and northern Europe was offset by significant declines in Ireland, southern and eastern Europe because of higher exposure to the on-trade channel. Britain’s top tipples were Gordon’s gin, Captain Morgan rum, Baileys and scotch.

With free cash flow improving £0.8bn to £1.8bn, the interim dividend was lifted by 2% to 27.96p per share.

No exact guidance was given for the second half, but chief executive Ivan Menezes broadly expects to see improvement in organic sales and operating profits across all regions over what was a weak period last year when the pandemic first broke out.

Menezes, who said the company was using data tools to “invest smartly in effective marketing and innovation” to strengthen its brands, “premiumise” its portfolio and expand digital capabilities, said he expects margins to improve as the on-trade and travel retail recover.

The shares were up 3% by midday on Thursday to 2,935.5p.

Analyst Dan Lane at Freetrade said: “It’s still tough out there for drinks brands, but US consumers are keeping Diageo afloat.”

He added: “Sensibly, Diageo have used the time to pivot as much as they can to consumers.”

William Ryder at Hargreaves Lansdown said recording organic sales growth in the second half “is no mean feat given the disruption coronavirus has inflicted on the hospitality industry”.

He said the next half’s sales are going to be flattered by the comparison with the start of the pandemic, but investors and analysts are likely to be more focused on market share and underlying growth in key brands.

“Diageo is still holding back on share buybacks until debt is brought under closer control, and management expects this to last until at least the end of the financial year. Caution is the right approach, although the group is well placed for a recovery over the summer if vaccines live up to their billing.”

   --Adds shares and broker comment--

Quick facts: Diageo PLC

Price: 2941.5 GBX

LSE:DGE
Market: LSE
Market Cap: £68.83 billion
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