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Spirits giant Diageo has posted strong growth in first-half sales and profits as consumers continue to flock to its premium portfolio despite rising prices.

The group reported net sales growth of £9.4bn in the six months to 31 December, an increase of 18.4% driven by organic sales growth and foreign exchange gains due to the strength of the US dollar.

Organic net sales grew 9.4%, with growth in all regions. Pricing drove 7.6 percentage points of growth, reflecting both a high single-digit price contribution and premiumisation. Organic volume growth was 1.8%.

Diageo said growth was enabled by its “diversified footprint, advantaged portfolio, strong brands and underpinned by favourable industry trends of premiumisation”.

Growth was delivered across most categories, primarily scotch, tequila and beer.

Premium-plus brands contributed 57% of reported net sales and drove 65% of organic net sales growth.

Total trade market share grew or held in over 75% of total net sales value.

Despite increased cost inflation it reported a “resilient” operating margin, with reported operating profit also up 15.2% to £3.2bn despite a 92ppts margin decline.

Organic operating profit grew 9.7% and organic operating margin expanded by 9bps, driven by leverage on operating cost reflecting disciplined cost management, despite inflation.

Additionally, price increases and supply productivity savings more than offset the impact of absolute cost inflation on gross margin.

Meanwhile, the group continued to invest in the business in the period, both through M&A – with the additions of Mr Black, Balcones Distilling and most recently Don Papa rum – and increasing organic marketing spent by 6.8% and investing 0.4bn of capex in supply capacity, sustainability, digital capabilities and consumer experiences.

CEO Ivan Menezes commented: “Today, Diageo is 36% larger than it was prior to Covid-19, reflecting the strength of our diversified footprint and advantaged portfolio. I want to thank my nearly 28,000 colleagues for their tireless work, focus and agility which has helped us to achieve these results.

“Sales growth was supported by our continued focus on premiumising our portfolio, bolstered by strong global premiumisation trends, with our super-premium-plus brands growing organic net sales 12%. As category growth trends continue to normalise following Covid-19, winning quality market share remains a key focus.

“We have delivered targeted price increases across all regions, enabled by our expertise in revenue growth management and supported by strong consumer demand for our brands. This, combined with our culture of everyday efficiency, has allowed us to increase our investments. We are investing in world-class brand building, digital and data capabilities and our ambitious 2030 sustainability plan to create a stronger and more resilient business for the long-term.”

“As we look to the second half of fiscal 23, whilst the operating environment remains challenging, I remain confident in the resilience of our business and our ability to navigate volatility. We believe we are well-positioned to deliver our medium-term guidance of consistent organic net sales growth in the range of 5% to 7% and sustainable organic operating profit growth in the range of 6% to 9% for 2033 to 2025.”

Diageo shares are down 4.4% on the news to 3,515p.

Morning update

Greencore has reported first quarter revenue growth of 19% to £463m, driven by inflationary effects despite overall manufactured volumes being modestly behind year on year.

Reported and pro forma revenue in food to go categories increased by 14.5% year on year to £291.1m driven by inflationary effects.

Greencore said the impact of Omicron on comparative figures in the prior year was offset by the disruption impact of railway strikes in the period, meaning that food to go volumes were slightly behind Q1 2022 with increased sandwich volumes being offset by lower demand in sushi and salads.

Revenue from distribution of third-party products was also impacted by lower volumes, which were approximately 10% behind last year.

Its ‘other convenience’ category increased by 27.6% year on year to £171.9m, driven by inflationary effects and the onboarding of new business in ready meals in addition to a strong performance across ambient sauces.

It warned that profit conversion in the quarter was behind management expectations due to a combination of lower volumes and a lag in recovery of inflation over the calendar year end.

To mitigate this shortfall, Greencore said today it was immediately implementing further measures through its Better Greencore efficiency programme, accelerating, and broadening the scope of the programme.

“The first phase is targeted to deliver annual recurring benefits of approximately £30m in 2024. The second phase is now focused on, firstly contract margin enhancement following the dilutive effect of new business onboarded and contract extensions agreed in the past two years and secondly, delivery of our operational excellence programme.

“Overall, the group continues to focus on recovery of inflation from customers, and while we expect to recover the significant majority of inflation, we now anticipate a lag in that recovery.

“Given the lower than expected volumes due to the disruptive impact of continued industrial action on demand and operations and the expected lag on inflation recovery the group now expects to generate 2023 profits at the lower end of current market expectations.”

Commenting on the performance, Dalton Philips, CEO, said: “It’s a difficult, volatile market, and the business has got off to a slower start to the year than envisaged. Given this, we are doubling down on our initiatives on inflation recovery, and in parallel, driving harder and faster to get our cost base to the right level.

“After just four months in the business, and notwithstanding the obvious challenges, I remain highly enthusiastic about the longer-term future of Greencore. Strategically we are well positioned for the future growth given our customer base, the categories in which we operate, our operational capabilities and critically the people behind all of this. However, the immediate focus is to tackle the shorter-term self-help actions which set the foundations for margin recovery.”

Fever-Tree continued to deliver strong top line growth in 2022, increasing group revenues by 11% year on year to £344m.

In a full-year trading update, the group said steps taken by the business to offset significant global inflationary cost pressures meant it expected to deliver Adjusted EBITDA of £39m, in-line with expectations.

Top line growth was achieved despite overall revenue declining by 2% in the UK, albeit the brand continues to gain distribution and market share, remaining the clear leader of the UK mixer category.

On-trade revenue increased by 28% year on year. However, the widespread industrial action undertaken across the UK rail network in the run-up to Christmas had a notable impact on sales in what is traditionally a very strong trading period.

In the off-trade, while the mixer category was annualising tough comparators after a very strong period of sales during lockdowns, the brand has increased volume share from pre-Covid levels.

In the US, Fever-Tree increased sales by 23% (13% at constant currency) despite the impact of industry-wide port congestion and logistics disruption.

European revenues grew by 15% (16% at constant currency), driven by a strong performance in southern Europe, and slightly offset by softening consumer sentiment in Germany.

Sales were up 18% (14% at constant currency) in the rest of the world thanks to strong sales growth in Australia.

For 2023, Fever-Tree noted that macro-economic volatility and uncertainty remained elevated in 2023.

However, it said that, as an increasingly diversified global business, it remains confident of delivering strong growth, with momentum continuing across our growth regions, especially the US, and a return to growth in its most established market in the UK.

As a result, it guided to revenue growth of £390m to £405m in 2023.

However, EBITDA will remain in line with this year given inflationary cost pressures, with further double-digit percentage increases across key input costs including filling fees, ingredients and packaging.

Tim Warrillow, CEO of Fever-Tree, commented: “2022 has seen the Fever-Tree brand continue to gain traction and prominence across the globe resulting in double-digit revenue growth and profits in line with expectations. Furthermore, the brand continues to increase its clear global market leadership position and remains the primary driver of this increasingly prominent international drinks category.

“Looking ahead to 2023, we remain very confident in delivering strong top line growth, most notably in the US. Whilst the initiatives we are implementing would have driven margin improvement during the year, the energy related cost increases, which are particularly acute across the glass industry, mean we expect to deliver absolute EBITDA in-line with 2022.

“These temporary additional costs will unwind significantly as the energy price recalibrates and we are resolute in continuing to invest for the longer-term, by introducing new products, expanding into adjacent categories such as adult soft drinks and delivering exciting new marketing campaigns across our regions.”

Britvic has posted a first quarter performance in line with expectations, with group revenues increasing 7.3% to £411m on a constant currency basis (up 9.9% on a reported basis).

The soft drinks group reported robust group revenue growth driven by price/mix, partly offset by an anticipated volume decline.

It saw strong Christmas trading, with December revenue 9%, led by its GB business which was up 13.8%.

Overall it was a particularly strong quarter for GB, with revenue up 9.8% delivered across both retail and hospitality channels.

However, it saw a modest decline in Brazil revenues down 0.4% reflecting a focus on price/mix to deliver a significant improvement in margin.

Other international revenue was up 3.5% led by Ireland and strong price/mix. France was broadly flat with price/mix growth offset by a volume decline.

CEO Simon Litherland said: “Our performance in the first quarter was robust and in-line with our expectations. Our portfolio of trusted, family favourite brands offer great value and continue to resonate strongly with consumers. We have continued to take decisive action to mitigate the impact of cost inflation with disciplined revenue management and a relentless focus on cost efficiency, to protect profit and margin.

“We have strong plans in all our markets and categories, including a brand refresh for Robinsons, pack and flavour innovation, as well as exciting marketing campaigns. Britvic is a well-invested business, with an agile supply chain and a capable and highly engaged team, which positions us well for the future.”

Finally this morning, sweetener specialist Tate & Lyle posted third quarter figures in line with expectations, with strong growth in its food and beverage solutions being mitigated by falling sucralose sales.

Food & beverage solutions was up 19%, with revenues benefiting from mix management, the pricing through of input cost inflation and acquisitions.

In North America, the group saw continued revenue growth despite supply chain disruption.

Both the regions of Europe and Asia, Middle East, Africa and Latin America delivered strong double-digit revenue growth reflecting good commercial performance and mix management.

Volume and revenue performance in the division were similar to the first half of the financial year.

Sucralose saw an 8% drop in sales reflecting the unwind of orders phased into the first half.

Therefore overall group sales for the quarter were up 16%.

The group’s outlook for the full year ending 31 March is unchanged, with it guiding to stronger profits in food & beverage solutions offsetting lower profits from the minority holding in Primient.

CEO Nick Hampton said: “Tate & Lyle continues to perform well with Food & Beverage Solutions delivering another strong quarter of double-digit revenue growth. We have successfully renewed 2023 calendar year customer contracts to recover higher input costs and, despite ongoing economic uncertainty, we continue to deliver against our strategy as a growth-focused speciality food and beverage solutions business.”

On the markets this morning, the FTSE 100 is back up 0.2% to 7,762.3pts.

Risers include Tate & Lyle, up 3.9% to 751.4p, Just Eat, up 2.6% to 2,021p and Ocado, up 2.3% to 713p.

Fallers, along with Diageo, include Greencore, down 7.3% to 70.9p, Fever-Tree, down 5.6% to 1,054.9p and Virgin Wines, down 4.5% to 53p.

Yesterday in the City

The FTSE 100 eased back another 0.2% yesterday to close at 7,744.9ppts.

Digital consumer groups had a tough day, with Ocado down 4.9% to 697p, THG down 3% to 53.1p and Just Eat, down 2.2% to 1,969.2p.

Other fallers included Tate & Lyle, down 3% to 723.2p ahead of its update this morning, PayPoint, down 2.4% to 519p, Marks & Spencer, down 1.8% to 145.1p, C&C Group, down 1.4% to 158.1p, Imperial Brands, down 1.4% to 2,026p and Premier Foods, down 1.4% to 112.4p.

The day’s risers included Hotel Chocolat, up 1.9% to 212p, Hilton Food Group, up 1.8% to 640p, WH Smith, up 0.6% to 1,593.5p and Finsbury Food Group, up 0.5% to 93.5p.