Whisky giant Diageo cheers strong post-lockdown trading despite supply chain woes
Johnnie Walker and Haig Club owner Diageo has cheered strong recent trading with a better-than-expected recovery in Europe despite facing supply chain issues.
The group, which is Scotland’s biggest whisky producer by volume and also owns Bell’s, said it was seeing a solid start to its new financial year with sales improvements across all regions as consumers spend more at bars and restaurants thanks to an easing in coronavirus restrictions.
In a trading update to coincide with its annual shareholder meeting, the Guinness maker said trading across Europe was recovering ahead of its expectations, with the UK, and many countries on the continent, having opened up and leisure sectors bouncing back.
Its North American business has been performing strongly, but the group also flagged some supply chain constraints, while it said it was seeing costs rise globally partly due to the logistics woes.
It expects a boost to its operating profit margin as sales pick up and consumers switch to more premium brands.
Group chief executive Ivan Menezes said: "We have made a strong start to fiscal (year) 22, with organic net sales momentum across all regions.
"This reflects excellent execution, as we benefit from resilience in the off-trade and continued recovery in the on-trade.
"However, we expect near-term volatility to remain, including the potential impact of any future waves of Covid-19."
Russ Mould, investment director at AJ Bell, the funds platform, noted: “Guinness manufacturer Diageo is demonstrating that good things truly do come to those who wait as, having ridden out the worst of the pandemic, the company reports a really strong start to its new financial year.
“The company is benefiting from people opting for premium brands and greater on-trade spending as people get back to restaurants and bars.
“Impressively this is expected to bolster margins, despite the company facing extra costs associated with supply chain constraints.”
He added: “The company is not complacent, signalling continuing volatility in its markets but its decision to continue investing in marketing and its commercial know-how demonstrates refreshingly long-term thinking.”
In July, Diageo reported solid annual sales, provided a robust outlook and raised a glass to the suspension of Scotch whisky tariffs in the US.
Net sales rose 8.3 per cent to £12.7 billion in the year to the end of June after factoring in the adverse impact of foreign exchange movements.
North America was a standout performer with organic growth of 20.2 per cent helped by “resilient consumer demand” and the replenishment of stock levels by distributors and retailers.
Ewan Andrew, president of global supply chain and procurement, highlighted double-digit growth in Scotch sales and said he was “super pleased” to see the US tariff dispute move towards a resolution.
He said the group had adapted to global lockdowns and restrictions by “understanding consumer needs”, upping “premiumisation” efforts and accelerating e-commerce growth.
The results also showed that the FTSE-100 group’s reported operating profit was up 74.6 per cent to £3.7bn.