Guinness sales were a bright spot for drinks group Diageo as it reported lower-than-expected annual sales and profits in a “challenging year.”
The company, which employs around 3,000 people in Scotland and produces brands including Smirnoff, Baileys, Johnnie Walker and Talisker, said consumers were more cautious – but that it was confident of returning to growth.
For the year to 30 June, Diageo posted a 4.8 per cent fall in operating profits to $6 billion on group sales down 0.6% to $20.3bn.
Debra Crew, Diageo chief executive, described 2024 as a “challenging year for both our industry and Diageo.” She added: “With continued macroeconomic and geopolitical volatility, we focused on taking the actions needed to ensure Diageo is well-positioned for growth as the consumer environment improves.”
Diageo said $302 million of its $304m fall in operating profits was attributable to Latin America and the Caribbean, where sales fell more than 21% as consumers turned to cheaper drinks and local spirits.
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Sales in North America were also down 2.5% in a “cautious” consumer environment.
But in Europe, strong sales of stout brand Guinness – including 5% net sales growth in Britain – helped to fuel 18% growth in beer sales and 12% sales growth overall for the region.
Ewan Andrew, Diageo’s president of global supply and procurement, said: “We used to run a ‘Guinness is good for you’ campaign – and we’ve seen in these results that Guinness has also been good for Diageo.”
The brand has seen double-digit growth globally for seven consecutive years. “It's a high quality premium drink,” Mr Andrew added. “But it's still actually very affordable.”
Higher interest rates and “sticky inflation” were contributing to consumer caution, Mr Andrew said. There was also uncertainty around “their future wallets with regards to so much political change in elections.”
Consumers are still buying premium products, “but maybe in their shopping basket, they're buying a little less,” he said.
Diageo has 30 single malt whisky distilleries across Scotland and Singleton was a star performer among these.
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The brand, which is produced across three distilleries at Dufftown in Moray and Muir of Ord in the Black Isle, grew global sales 9% last year against a 9% fall in sales across Diageo’s scotch malt whisky portfolio.
Talisker also continued to be the world’s number one peated malt for the third year in a row. Other highlights during the year included the reopening after 40 years of the Port Ellen Distillery on the island of Islay and the release of Brora Iris, a single bottle of 50-year-old malt from the Brora distillery in Sutherland that sold for £400,000 in a charity auction.
Diageo said it was winning or holding market share in markets generating 75% of its sales, including the United States. It was confident that sales growth would return and is focused on getting back to its medium-term target of 5% to 7% net sales growth from existing operations – though it couldn’t say when this might be.
“We continue to believe demographic trends, rising incomes in the developing world, spirits gaining share from beer and wine, and the long-standing trend of premiumisation [consumers trading up to better quality products] will help to drive attractive underlying growth in our markets,” the company said.
Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said: “While there remains some short-term uncertainty in the drinks market, Diageo’s cash flows remain extremely healthy, and the dividend has been bumped up by 5% to reward investors for their patience.”
Diageo said it had delivered record productivity savings of nearly $700m and plans another $2 billion savings over three years across cost of goods, marketing spend and overheads.
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The company said it had also generated $2.6bn in free cash flow – cash after accounting for operational and capital spending – while increasing strategic investments.
Diageo’s shares fell almost 10% in early trading before recovering to close down 5% at 2,421p.
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