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Diageo reports 'strong' interim results - but warns of continuing disruption

Diageo has expressed confidence after a slight pick-up in sales in the second half of 2020 - but warned that it is not out of the woods yet, as on-trade shutdowns continue to impact performance.

In interim results for the six months to 31 December 2020, the group reported net sales of £6.9 billion, down 4.5 per cent, and an operating profit of £2.2 billion, a decline of 8.3 per cent. Diageo said the falls had been driven by 'unfavourable exchange'.

While it reported a 1 per cent increase in organic net sales, organic operating profit was down by 3.4 per cent.

Diageo said it had seen 'strong' sales improvements in all regions in the six-month period compared with the first half of 2020, but that it expected the continuing impacts of the coronavirus pandemic to have an effect on performance in the first half of 2021.

North America proved a strong market for the group, with net sales up by 12.3 per cent in the period, an increase in its share of total beverage alcohol sales, and 'resilient' consumer demand.

Despite its negative impacts, the group said that the reduction in sales demand and added cost control measures triggered by the Covid-19 pandemic did help it to clear some creditor debt, with balances now at 'more normalised levels'.

Ivan Menezes, CEO of Diageo, said: "We delivered a strong performance in a challenging operating environment, returning to top-line organic sales growth during the half. We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in travel retail. 

"North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol. Across other regions we delivered strong sequential improvement compared to the second half of fiscal 20. This reflects improved market share performance through excellent execution in the off-trade channel, and the partial reopening of the on-trade channel in certain markets."

He added: "We expect ongoing volatility and disruption in the second half of the year, particularly in the on-trade channel, which will make performance more challenging. The medium and long-term growth drivers and opportunities for our business remain intact and I am confident in our strategy, the resilience of our business and Diageo's ability to emerge stronger."

28 January 2021 - Bethany Whymark