Diageo full-year profits plummet 47.1%

Johnnie Walker owner Diageo saw operating profit decline 47.1% in its 2020 fiscal year due to the impact of Covid-19 on its key markets.

Johnnie Walker declined by 22% in Diageo’s fiscal 2020

For the year ending 30 June 2020, Diageo’s reported operating profit declined by 47.1% to £2.1 billion (US$2.7bn). Organic net sales fell by 8.4% to £11.8bn (US$15.4bn).

The group also noted a non-cash impairment charge of £1.3bn (US$1.7bn), related to its businesses in India, Nigeria, Ethiopia and the Windsor whisky brand in South Korea, due to the impact of Covid-19 and “challenging trading conditions”.

In addition, the firm said it already had “strong liquidity” and has put in place an extra credit facility of £2.5bn (US$3.2bn).

Diageo CEO Ivan Menezes called its fiscal 2020 “a year of two halves” with a “good, consistent performance” during the first half. However, Menezes noted that Covid-19 presented “significant challenges” for the firm.

He said: “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 flexibility to continue to invest effectively in the business for the long term.

“While the trajectory of the recovery is uncertain, with volatility expected to continue into fiscal 21, I am confident in our strategy, the resilience of our business and am very proud of the way our people have responded. We are well positioned to emerge stronger.”

In April, Diageo withdrew its guidance on net sales and operating profit for fiscal 2020 due to “uncertainty” over how the pandemic has hit the group.

At the time, Diageo announced that the next phase of its three-year share buyback programme of up to £4.5bn (US$5.5bn) will not commence during the remainder of fiscal 2020. Under the first phase of the programme, which ended on 31 January 2020, the group returned £1.25bn (US$1.5bn) to shareholders.

Brand performance

By category, organic net sales of spirits (excluding ready-to-drink) fell by 8%. The only spirits categories to register a net sales increase during fiscal 2020 were Canadian whisky, Tequila and US whiskey. The ready-to-drink (RTD) category grew by 8%.

Scotch declined by 17% as a “soft” performance in the first half was hit by “ongoing commercial challenges along with political and economic disruption” throughout the year. Blended Scotch brand Johnnie Walker declined by 22%.

Vodka dropped by 8% with Smirnoff and Ketel One both registering a 6% net sales decline. Cîroc fell by 17%, driven by “continued performance challenges”, mainly in the US.

Canadian whisky Crown Royal grew organic net sales by 8%, boosted by the US where it increased its share of the category. The brand also benefitted from “sustained” media investment.

Rum fell by 7% with Captain Morgan rum declining by 2% organically. The category was impacted by Covid-19 in the US, India and East Africa.

Liqueurs declined by 4% with Baileys registering a 3% net sales decrease as “successful at-home activities” were not enough to relieve the impact of on-trade closures.

Tequila increased by 25% with Casamigos up by double digits “despite on-trade closures driven by strong category momentum in key markets and actions taken to strengthen its position in at-home occasions”. Don Julio Tequila rose 15%, as continued growth in the US helped to offset declines in Mexico due to “competitor pricing pressures” and coronavirus lockdowns in the second half.

Gin dropped by 5% with Tanqueray declining by 4%. US whiskey increased by 3% with Bulleit Bourbon growing organically by 3%, boosted by the US, and Canada where it grew by 14%.

Diageo’s largest market, North America, was the only region to grow sales during fiscal 2020 with a 2% organic net sales increase. The group said “strong” net sales during the first half of the fiscal year was only partly offset by lower on-trade sales in the second half, reflecting the “strong demand” in the off-trade during the pandemic.

Net sales of US spirits grew 2% with double-digit growth for Tequila brands Don Julio and Casamigos. Crown Royal grew 8% and Johnnie Walker declined by 11%.

Net sales in the Europe and Turkey region fell by 12% due to on-trade closures in a number of markets. Great Britain’s net sales fell by 4%, while Ireland declined by 15%. Russia’s net sales were down by 8% and France declined by 5%.

In Africa, net sales fell by 15% with spirits falling 14% due to Johnnie Walker, Kenya Cane and Smirnoff.

The Latin American and Caribbean region registered a net sales decline of 15%, while Asia Pacific sales fell by 16%.