Diageo released its preliminary results yesterday (1 August) for the year ending June 30, 2023, saying that they are also seeing an easing of cost inflation following double digit growth during the last fiscal year.
Net sales reached £17.1 billion, a 10.7% increase, with pre-tax profits rising by 7% to £4.7 billion for the year. Operating profits grew from £4.4 billion to £4.6 billion, achieved by offsetting falling volume sales with higher prices, and a trend of consumers upgrading to premium spirits. It said organic net sales lifted 6.5%, while organic sales by volume fell 0.8%.
This time last year Diageo said cost inflation had risen 7-8% since the start of the Ukraine war, this year Diageo’s finance chief, Lavanya Chandrashekar, said that, to June 2023, this rise went up “squarely in the double-digits” driven by energy prices, impacting items such as fertilisers, cereals, glass, and transportation costs.
However, there is a glimmer of hope on the horizon, as Chandrashekar indicated that broader inflation is starting to slow. She said, “We are seeing that moderate as we’re getting into the coming fiscal (year). So at least it’s not going up.”
Despite cost pressures and geopolitical uncertainties, Diageo’s new chief executive, Debra Crew, who took over in June after the passing of long-standing CEO Sir Ivan Menezes, said, “We have delivered strong fiscal 23 full-year results, with organic net sales growth of 6% and organic operating profit growth of 7%, both within our medium-term guidance. We expanded organic operating margin by 15 basis points in a challenging cost environment while continuing to invest in the business.
“These results demonstrate Diageo’s ability to consistently deliver resilient performance, even in challenging macro environments. I want to thank my colleagues, nearly 30,000 globally, for their dedication, creativity and agility in delivering these results. I am also proud of how our Diageo family has come together in recent weeks following the loss of our much loved and respected former CEO, Sir Ivan Menezes.
“In fiscal 23, we drove double-digit organic net sales growth in scotch, tequila, and Guinness, with our premium-plus brands contributing 57% of overall organic net sales growth. We delivered strong growth in four of our five regions, with Europe and Asia Pacific growing double-digit. North America delivered stable performance as the US spirits industry continued to normalise post-pandemic, and we lapped strong comparators, particularly in the second half of fiscal 23. Globally, we gained or held share in over 70% of total net sales value in our measured markets in fiscal 23.
“Our culture of everyday efficiency and strong pipeline of productivity initiatives drove £450 million of savings in fiscal 23, fuelling sustained investment in brand building. Our revenue growth management capabilities, deep consumer insights, and smart reinvestment enabled us to take strategic pricing actions with precision and effectiveness. Through free cash flow delivery, we increased our capital expenditure, acquired a number of brands to strengthen our exposure to attractive categories and bolstered our investment in maturing stock in fiscal 23, positioning us well for sustainable, long-term growth.
“Looking ahead to fiscal 24, I expect operating environment challenges to persist, with continued cost pressure and ongoing geopolitical and macroeconomic uncertainty. This requires us to move with greater speed and agility. My near term opportunities to drive the business focus on bolder and faster innovation, stepping up operational excellence to meet consumers’ evolving tastes and preferences while driving scotch, tequila and Guinness.
“Fiscal 24 marks the start of Diageo’s next stage of evolution, and it is an incredible privilege to be leading the company through it. I believe total beverage alcohol (TBA) is an attractive sector underpinned by strong consumer fundamentals, including population growth, increased spirits penetration, and resilience in premiumisation globally. I see a long runway of future growth opportunities for Diageo to go after with our winning strategy. And, I firmly believe we have an advantaged portfolio to capitalise on, to drive sustainable long-term growth and generate value for shareholders. I am excited to work with our teams around the world to capture the opportunities ahead.”