Interim Results
Diageo delivers strong cash generation and is well positioned for future growth despite challenging first half environment
◦ Reported net sales of $11.0 billion declined 1.4% or $158 million, due to a $167 million unfavourable foreign exchange impact and an organic net sales decline of $67 million or 0.6%, driven by a $310 million or 23% decline in Latin America and Caribbean (LAC).
◦ Excluding the impact of LAC, reported net sales grew $72 million or 0.7%, and organic net sales grew $243 million or 2.5%, driven by Asia Pacific, Africa and Europe, partially offset by a $64 million or 1.5% decline in North America which improved sequentially from the second half of fiscal 23.
◦ The decline in LAC was driven by a strong double-digit net sales growth comparator as well as lower consumption and consumer downtrading due to macroeconomic pressures in the region.
◦ Reported operating profit declined 11.1% to $3.3 billion, and reported operating profit margin contracted 329bps due to lower organic operating margin and a negative impact from exceptional operating items.
◦ Organic operating profit declined by $205 million or 5.4%, of which $234 million was attributable to LAC; organic operating margin contracted 167bps.
◦ Excluding the impact of LAC, organic operating profit grew by $29 million or 0.9%, and organic operating margin contracted 53bps, driven by increased marketing investment.
◦ Net cash flow from operating activities increased by $0.7 billion to $2.1 billion. Free cash flow increased by $0.5 billion to $1.5 billion, driven by disciplined working capital management and the positive impact of lapping one-off cash tax payments from the prior year.
◦ Declared interim dividend increased by 5% to 40.50 cents per share. Completed $0.5 billion of share buybacks as part of the return of capital programme announced on 1 August 2023.
Debra Crew, Chief Executive, said:
The first half of fiscal 24 was challenging for Diageo and our sector, particularly as we lapped strong growth in the prior year and faced an uneven global consumer environment. Excluding LAC, our group organic net sales grew 2.5%, driven by good growth in Europe, Asia Pacific and Africa. While North America delivered sequential improvement in line with our expectations, we are focused on returning to high-quality share growth as consumer behaviour continues to normalise in our largest region.
As previously announced in November 2023, materially weaker performance in LAC, driven by fast-changing consumer sentiment and high inventory levels, significantly impacted total business performance. Having conducted a review of inventory levels and monitored performance in the critical holiday season, we have taken action and have further plans to reduce inventory to more appropriate levels for the current consumer environment in the region by the end of fiscal 24. This is a key priority.
With a strong focus on execution, we delivered an improved free cash flow of $1.5 billion, and our pipeline of productivity initiatives in the first half of fiscal 24 drove $335 million of savings, helping us to sustain investment in brand building. During the half, we returned $0.5 billion to shareholders via share buybacks as part of our commitment to return up to $1.0 billion of capital to shareholders in fiscal 24. We declared an interim dividend increase to 40.50 cents per share, reflecting our commitment to a progressive dividend policy.
Looking ahead to the second half of fiscal 24, despite continued global economic volatility, we expect to deliver improvement in organic net sales and organic operating profit growth at the group level, compared to the first half. While the macro environment will continue to present challenges, I am confident that we remain well-positioned and resilient for the long term. We are diversified by category, price point and region and will continue to invest behind our iconic brands to maintain our position as an industry leader in total beverage alcohol, an attractive sector with a long runway for growth.
And later;
Dividend
The group aims to increase the dividend each year. The decision in respect of the dividend is made with reference to the dividend cover as well as current performance trends, including sales and profit after tax together with cash generation. Diageo targets dividend cover (the ratio of basic earnings per share before exceptional items to dividend per share) within the range of 1.8-2.2 times. For the year ended 30 June 2023, dividend cover was 2.0 times on a re-presented basis. The group will keep future returns of capital, including dividends, under review through the year ending 30 June 2024 to ensure Diageo's capital is allocated in the best way to maximise value for the business and its stakeholders.
An interim dividend of 40.50 cents per share will be paid to holders of ordinary shares and US ADRs on register as of 1 March 2024. The ex-dividend date is 29 February 2024. This represents an increase of 5% on last year's interim dividend. The interim dividend will be paid to holders of ordinary shares and US ADRs on 17 April 2024. Holders of ordinary shares will receive their dividends in sterling unless they elect to receive their dividends in US dollars by 15 March 2024. The dividend per share in pence to be paid to ordinary shareholders will be announced approximately two weeks prior to the payment date and will be determined by the actual foreign exchange rates achieved by Diageo buying forward contracts, entered into during the three days preceding the announcement. A dividend reinvestment plan is available to holders of ordinary shares in respect of the interim dividend and the plan notice date is 15 March 2024.
https://www.investegate.co.uk/announcem ... ts/8011679Ian.
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