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Spirits giant Diageo has posted net sales growth of 10.7% driven by price rises and premiumisation, which mitigated a drop in sales volumes.

The company posted net sales of £17.1bn, up 10.7% on strong organic net sales growth and favourable impacts from foreign exchange.

Organic net sales grew 6.5%, was driven by price/mix gains of 7.3 percentage points reflecting a high single-digit contribution from price and premiumisation.

Reported volume declined by 7.4%, and organic volume declined by 0.8%.

Diageo said overall growth reflected its portfolio of strong brands, diversified footprint, and premiumisation.

Growth in organic net sales was delivered across most categories, particularly in the group’s three largest categories: scotch, tequila and beer.

Premium-plus brands comprised 63% of reported net sales, a 7 percentage point increase from fiscal 19.

That premiumisation helped organic operating profit grow 7% and organic operating margin expand by 15bps, also driven by disciplined cost management, while price increases more than offset the absolute cost inflation impact on gross margin.

Reported operating profit grew 5.1% to £4.6 billion. Reported operating margin declined by 147bps, with organic margin expansion more than offset by exceptional operating items and foreign exchange.

Diageo noted its strong net sales growth in the first half moderated in the second half and it expects an improvement in the first half of 2024 despite tougher comparatives.

It also continues to expect organic operating margin to benefit from premiumisation trends and operating leverage while investing strongly in marketing.

It expects organic operating profit growth in its 2024 financial year to improve from the second half of 2023 and accelerate gradually through 2024.

CEO Debra Crew commented:

“These results demonstrate Diageo’s ability to consistently deliver resilient performance, even in challenging macro environments.

“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.

“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.”

Diageo shares are yo 1.8% this morning to 3,457.5p.

Morning update

Food to go stalwart Greggs has posted has reported strong sales and profit growth in the first half of its financial year as it continues to grow its estate.

Total sales for the 26 weeks to 1 July 2023 were up 21.5% to £844m, driven by new store openings and like-for-like growth.

Like-for-like sales in company-managed shops grew by 16% when compared with the equivalent period of 2022.

Greggs said this like for like performance for the first two months of the year was flattered by comparison with the Omicron-affected period in 2022, but also reflected the it has taken to make Greggs available in more channels and at more times of day continue to result in additional customer visits.

In the first half of 2023 it opened 94 new shops (including 33 franchised units) and closed 44 shops, giving a total of 2,378 shops (of which 466 are franchised) trading as at 1 July 2023.

It said it has increased the pace of both openings and closures as it expands the reach of shops into new locations and relocate existing shops to larger sites in better locations to facilitate further growth.

It has a strong new shop pipeline and remains confident it will open around 150 net new shops in the year as a whole.

In the first half of 2023 it also refurbished 71 shops, and anticipates completing around 140 shop refurbishments, 125 company-managed and 15 franchised, in 2023.

Underlying pre-tax profit was up to £63.7m from £55.8m, supported by a strong start to the year in January and February where the sales comparatives in 2022 reflected the impact of Omicron.

Cost inflation, particularly in food and packaging commodities, continued to be a feature of the first half of 2023 but is expected to ease somewhat as the group annualises on the significant mid-year increases seen in 2022.

Overall like-for-like cost inflation was 11% in the first half of 2023 and Greggs expects this to reduce to around 7% in the second half, averaging around 9% for the year as a whole.

Underlying net profit margin before taxation in the first half of 2023 eased slightly to 7.5% from 8%.

CEO Roisin Currie commented: “Greggs strong performance continued in the first half of 2023 as we deliver on our strategic growth plan. With consumers remaining under pressure, we continue to offer exceptional value, which is reflected in our performance and growing market share.

“In the period we continued to open further new shops, extended trading hours into the evening and saw increased participation in the Greggs App.

“Our ambitious plans for growth are on track and our amazing teams are committed to realising the opportunity to become a significantly larger, multi-channel business.”

Elsewhere, AG Barr chief executive Roger White will step down from his role at an agreed date within the next 12 months to retire.

The soft drinks group’s board will immediately commence a formal succession process including an external search to ensure a smooth leadership transition.

Chairman Mark Allen commented: “Roger has served the shareholders, Board, wider business and industry for over 21 years - this makes him one of the longest serving CEO’s in the UK public market.

“He has supported the transformation of the business from a regional soft drinks business into a highly successful multi beverage, branded company that has delivered significant value to shareholders, stakeholders and employees. A.G. Barr has a strong culture and momentum and is strategically well placed to continue to deliver for the long term”.

White added: “It has been a privilege and pleasure to lead the business for over two decades and now the time is right to plan for my succession and to ensure the continued success of the business. I would like to pay tribute to everyone across the whole organisation who make A.G. Barr a very special place with amazing brands.”

The group also posted a trading update today for the 26 weeks ended 30 July 2023.

Revenue for the first half of the financial year is expected to be £210m (up from £157.9m), representing 33% growth and 10% like for like growth excluding the contribution from the Boost Drinks business acquired in December 2022.

The group delivered revenue and volume growth, reflecting underlying brand momentum, the benefit of higher pricing from early in the year and particularly good weather in June.

Barr Soft Drinks and Boost Drinks saw strong trading performance driven by volume growth, pricing and mix, alongside effective sales execution and successful consumer marketing activity

Funkin Cocktails saw revenue growth driven by further distribution gains, increased consumer marketing investment and continued innovation, while Moma Foods saw significant year-on-year growth as oat milk outperforms other plant-based milk categories

As anticipated, first half margins remained under pressure but are in line with our expectations.

It currently expects full year profit performance to be marginally above the top end of analyst expectations.

Roger White added: “I am pleased to report we have had a strong first half, despite ongoing macro cost challenges. Our focus remains on offering consumers great value, affordable brands.

“Our medium-term plan to rebuild the group’s operating profit margin is progressing well across a range of activities, including supply chain optimisation, cost management and portfolio development. We have strong brand plans in place across the business for the balance of the year to sustain our growth momentum and we remain confident in the Group’s long-term growth strategy”.

Also this morning, annual shop price inflation decelerated back to 7.6% in July, down from 8.4% in June, according to the BRC/Nielsen monthly shop price index.

The index fround that shop price inflation is now at its lowest level this year.

Non-food inflation decelerated to 4.7% in July, down from 5.4% in June.

Food inflation decelerated to 13.4% in July, down from 14.6% in June. This is below the 3-month average rate of 14.5% and is the third consecutive deceleration in the food category and the lowest level since December 2022.

Fresh Food inflation slowed further in July, to 14.3%, down from 15.7% in June, which is the lowest level since November 2022.

Meanwhile, ambient food inflation decelerated to 12.3% in July, down from 13% in June and is the lowest since February 2023.

Helen Dickinson, CEO of the British Retail Consortium, said: “Shop price inflation fell to its lowest level of 2023 and, for the first time in two years, prices fell compared to the previous month. Leading the cuts was clothing and footwear, where retailers mitigated wet weather with larger discounts. Food price inflation also slowed to its lowest level this year, with falling prices across key staples such as oils, fats, fish, and breakfast cereals.

“These figures give cause for optimism, but further supply chain issues may add to input costs for retailers in the months ahead. Russia’s withdrawal from the Black Sea Grain Initiative and subsequent targeting of Ukrainian grain facilities, as well as rice export restrictions from India are dark clouds on the horizon.

“We expect some global commodity prices to rise again as a result, and food prices will be slower to fall. Retailers continue working hard to keep falling prices on track. Government must also play its part and freeze business rates from next April, or else risk adding a £400m additional pressure on prices.”

Mike Watkins, head of retailer and business insight, NielsenIQ, added: “The summer holiday period should help discretionary spend a little and whilst inflation remains high, the outlook is improving. Shoppers continue to change how they shop as part of their coping strategies. This includes shopping at different retailers, buying lower priced items, delaying spend or only buying when there are promotions. This behaviour looks set to continue.”

Yesterday in the City

The FTSE 100 ended July nudging up 0.1% to 7,699.4pts.

The day’s risers included McBride, up 7.1% to 37.2p, Virgin Wines, up 6.3% to 34p, PayPoint, up 4.7% to 512p, Naked Wines, up 2.5% to 74.5p, Hotel Chocolat, up 1.7% to 117p and Deliveroo, up 1.7% to 131.4p.

Fallers included Kerry Group, down 3.9% to 88.4p, Ocado, down 3.9% to 938.4p, C&C Group, down 3.5% to 138p, AG Barr, down 3% to 471.5p, Coca-Cola HBC, down 2.7% to 2,292p and FeverTree, down 2% to 1,342p.

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