Diageo hails strong trading despite supply chain woes and cost pressures

Guinness maker Diageo has cheered strong recent trading with a better-than-expected recovery in Europe despite mounting supply chain woes.

The group, which also makes Gordon’s gin and Smirnoff vodka, said it was seeing a solid start to its new financial year with sales improvements across all regions as consumers spend more at bars and restaurants thanks to easing coronavirus restrictions.

It said trading across Europe is recovering ahead of its expectations, with the UK and many countries on the continent having opened up and leisure sectors bouncing back.

The firm said its North American business was performing strongly, but flagged supply chain constraints, while it said it was seeing costs rise globally partly due to the logistics woes.

But Diageo stressed it was “managing” the inflationary pressures.

Diageo, which is holding its annual general shareholding meeting on Thursday, also said it expects a boost to its operating profit margin as sales pick up and consumers switch to more premium brands.

Shares in the FTSE 100 listed group lifted nearly 3% in morning trade.

Ivan Menezes, chief executive of Diageo, said: “We have made a strong start to fiscal (year) 22, with organic net sales momentum across all regions.

“This reflects excellent execution, as we benefit from resilience in the off-trade and continued recovery in the on-trade.

“However, we expect near-term volatility to remain, including the potential impact of any future waves of Covid-19.”

The firm recently revealed underlying operating profits jumped by 18% to £3.7 billion in the year to June after net sales surged 16% to £12.7 billion.

This came despite significant disruption over the year due to the pandemic with
bars closing for large periods across many regions.

Diageo has seen its British business boosted by strong retail spirit sales as supermarket trade largely offset hospitality closures.

The figures in July showed its UK operation enjoyed 7% annual sales growth, with spirit sales up 16% as shoppers bought more scotch, Baileys, vodka and gin, with boosts from new product line such as Gordon’s Sicilian Lemon and Captain Morgan Tiki rum.

However, beer sales slumped by 16% due to the enforced hospitality closures in the UK.